Karachi, April 01, 2022 (PPI-OT): Mar-2022: Month-end surge tips the scales
1800 points (+4.4%) rally in 8 days saves the ‘month’
A sharp month end rally rescued a sluggish month as 4.4% uptick in 8 sessions helped KSE-100 close March +1.1%. The mini-rally also fed into a positive close to 1QCY22 (+0.75%). The ebb and flow were dictated by fluctuating news on domestic politics and geo political tensions (which reflected in commodity prices). While the later trading sessions also witnessed better participation, the dry volumes in earlier sessions took average trading down 16% MoM.
But economic considerations to take over soon
Beyond the political noise, focus will likely shift back to the economy and outlook of economic policies, especially with IMF’s seventh review underway. The Prime Minister’s Relief Package announced at the end of last month has reportedly been a topic discussed at length between IMF and government officials and whether there is adequate fiscal space to accommodate the package.
Recent data points and market moves not favourable
After reporting the worst CAD monthly number for Jan-2022 (US$2.5bn), higher oil prices renewed concerns on the outlook on CAD, brushing away Feb-2022’s CAD clocking in at an improved level of US$545mn, as foreign exchange reserves were further trimmed by US$4.3bn, of which only partially be rolled over from China. Pressure on the PKR went hand in hand, touching a low of Rs183.50.
Monetary Policy will be closely tracked for policy response
SBP’s Monetary Policy meeting that announced a status quo was followed by T-Bill and PIB auctions further adjusting the humped yield curve upwards. With that, 6M KIBOR also touched 12.52%, expanding the spread over Policy Rate to 277 bp. With expectations of Mar-2022 CPI to cross 13% one more time and real effective interest rates reaching -3.45%, the upcoming Monetary Policy Committee meetings scheduled for Apr-2022 and May-2022 become very crucial.
Clarity needed for rerating – cherry picking merits attention
The outcome of the no-confidence vote against Prime Minister and the events that transpire in the immediate aftermath of the vote will be critical. Political pundits suggest that irrespective of the outcome of the vote itself, general elections being conducted earlier than the originally scheduled 2023 are likely.
Political and macro noise notwithstanding; forward P/E of 4.6x, where earnings yields trade at 21.7%, against 12M PKRV of 12.45% raise the question whether a lot of the pain is priced in. Having said that we believe the broad-based rerating will require macro and political clarity. That should however not undermine the bottom up stories that have performed strongly in this environment.
Looking ahead, coal prices cooling off amid increase in cement prices should buoy cements, while favourable urea pricing dynamics make FFC well positioned among fertilizers. In addition, we reiterate our liking for banks and E and Ps where a combination of growth stories with dividend yields are on offer.