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Stock Smart Weekly (Dec 04, 2020)

StockSmart                       

Weekly Review                                

The KSE-100 remained buoyant during the outgoing week, where tough measures for containing COVID-19 cases taken the previous week, as well as potential measures to revitalize the IMF program already forgotten by the investors. The exuberance was majorly led by GoP reportedly budgeting US$150mn for procurement of vaccines by 1QCY21. The inflation reading at 8.35% was up by 0.82ppt MoM, where Pakistan now has a negative real interest rate of 1.35%. Yet, the bullish momentum in the market indicated the investors placing more value on COVID-19 vaccine availability over utility rate hikes, upsurge in global crude oil prices and consequent monetary policy tightening on the horizon. Key data points released during the week included oil sales numbers, which posted a growth of 11% over 5MFY21, where HSD and FO sales both posted an uptrend. Another development in the OMCs sector was a proposal of 16% hike in profit margins of oil firms and dealers. Meanwhile, OPEC members managed to decide at increasing 500K bpd increase in production in Jan’20, with COVID-19 vaccinations announcement driving the optimism. The OPEC was expected to continue 7.7mn bpd output cut during 1QCY20. The members will now meet every month to decide production cuts/increases, which will likely drive volatility in oil prices. The brent nevertheless crossed US$49/bbl by the end of the week. Other major news included: (i) ADB inks policy-based loan agreement worth $300m, (ii) CCoE approves power supply at cents 7.5/kWh for 2 months subject to closure of captive power plants, (iii) Govt mulls equity swap to cut circular debt of PSO, (iv) Drug prices to be increased, and reduce Minimum Retail Prices (MRPs) of Remdesivir 100mg injection from Rs9,244 to Rs.5,680, (v) Diesel price raised by Rs4 per litre, (vi) Hubco power plant offers govt buyout for Rs65 billion, (vii) Nov exports +7.2%YoY to US$2.156bn, 5MFY21 exports flat and, (viii) Govt-IPPs MoUs granted cabinet sanction. Top performers in the outgoing week were, i) PSMC (+17.2%WoW), ii) TRG (+16.9%WoW), iii) ATRL (+16.4%WoW), iv) INIL (+12.3%WoW), and v) AGIL (+12.2%WoW), whereas laggards were, i) GATI (down 15.3%WoW), ii) STJT (down 7.5%WoW), iii) JLICL (down 3.7%WoW), iv) SCBPL (down 2.5%WoW), and v) HMM (down 1.8%WoW).

 

Outlook

 

With restrictions on commercial activities to contain COVID-19 already in place and hopes of procuring COVID-19 vaccines in the backdrop, the investor interest may be driven by oil prices momentum, energy sector developments, GoP’s response to IMF’s proposed tough measures as well as earnings outlook for 4QCY20. Our preference is tilted towards E&Ps (oil price rally) and OMCs (impressive offtake) as well banks (dividend payouts), and select textiles (export orders likely to gain strength from improved COVID-19 outlook).

AKD Research