Karachi, June 03, 2022 (PPI-OT): Weekly Review

In a week which saw sluggish movement in the first three days, the market took a hit on Thursday and Friday, with the KSE-100 losing 3.6%WoW to close at 41,315pts. Economic uncertainty along with rising interest rates and bond yields have led to a negative sentiment in the market. Average volume for the Index decreased significantly, losing 25.3% to 10mn shares this week. Major news flows during the week were; i) Govt. increases prices of POL products with petrol now PkR208, ii) Pakistan agrees terms for rollover of USD2.3bn debt from China, iii) Moody’s changes the outlook for Pakistan to negative, iv) NEPRA hikes base-tariff by PkR7.9/unit, v) T-bills yields jump 75bps for 3m/12m and 55bps for 6m, vi) SBP’s forex reserves dip below USD10bn, vii) Govt. shocks consumers with PkR213/liter hike in cooking oil prices, vii) Govt. lifts ban on import of raw materials and machinery for industrial sector, and lastly viii) Pakistan shut out of international bond markets with IMF last resort.

Sector-wise, the top performing sectors were; i) Vanaspati and Allied Industries (+10.7%WoW), ii) and Sugar and Allied Industries (+3.5%WoW), while the least favourite sectors were; i) Automobiles parts and accessories (-9.7%WoW), ii) Engineering (-9.6%WoW), iii) Leasing companies (-9.5%WoW), iv) Woolen (-8.8%WoW), v) and Cement (-8.4%WoW). Stock-wise, top performers were; i) POML (+16.1%WoW), ii) SCBPL (+4.6%WoW), iii) ABOT (+2.9%WoW), iv) COLG (+1.6%WoW), and v) ABL (+1.5%WoW), while laggards were; i) TGL (-12.4%WoW), ii) THALL (-12.1%WoW), iii) CHCC (-11.7%WoW), iv) PGLC (-11.3%WoW), and v) PSX (-11.2%WoW). Flow-wise, Insurance companies remained the net sellers, offloading US$7.8mn followed by Mutual Funds (US$4.1mn). While Individuals and Companies were on the buying side, with a net buy of US$5.6mn.

Outlook

With T-bills yields rising and amid political uncertainty, the market remains in a state of indecisiveness. Incoming news regarding IMF is bound to remove some of the gloom, but the longer it gets delayed the more the uncertainty is going to influence the market. The local currency has started paring some of the losses it has made recently, appreciating to ~PkR198/USD at the time of writing, with fresh inflows likely to materialize once the IMF deal is closed. With rising interest rates and the Govt. removing subsidies from POL products, overall market outlook remains uncertain at best as we await news from IMF. We retain our liking for Refineries and IT sector in the current backdrop and advocate for gradual accumulation in fundamental scrips with a longer-term focus.