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Stock Smart Weekly (Oct 09, 2020)

StockSmart                       

Weekly Review                                

With higher than expected inflation and heightened political tension (after announcement by opposition parties' alliance to hold rallies across the country) in the backdrop, index started the week on a negative note, down 2.5% at the close of first session of the week. After remaining jittery in the second session, recovery was finally witnessed during third trading session and the sentiment remained positive till close of the week, helping index close at 40,798pts, up 1.8%WoW. Mid-week change in sentiment was backed by stellar cement sales (up 22%YoY for Sep'20, standing at 5.2mn tons – highest ever) and consequently cement sector remained in the limelight with a 4.3%WoW increase. Similarly Oil & Gas marketing sector also posted an impressive return of 3.3%WoW backed by expectations of a good result for 1QFY21. Among other major sectors, banking sector's performance remained muted despite being attractive on valuations after State Bank of Pakistan (SBP) asked banks to close all accounts of ministries and divisions and transfer the balance funds to the federal government's central account with the SBP. Avg, daily turnover for week witnessed a growth of 6.6%WoW and stood at 417mn shares. Major news flow during the week included 1) Petroleum Division admitting that Economic Coordination Committee (ECC) of the Cabinet has recently increased the gas price for different sectors, 2) Government allowing Ministry of Finance to launch three international bonds to build up foreign currency reserves, and 3) Pakistan's trade deficit widening by 19.49%YoY to US$2.4bn for Sep'20. Flow wise, foreigners stood as net sellers with outflow of US$7.5mn whereas profit taking was conducted mainly by individuals (net outflow of US$10.9mn), only to be absorbed by Banks/DFI (net inflow of US$7.1mn) and insurance (net inflow of US$6.6mn). Top performers in the outgoing week were, i) UNITY (+14.5%WoW), ii) KOHC (+11.9%WoW), iii) ILP (+10.9%WoW), iv) KTML (+9.4%WoW), and v) PAEL (+8.8%WoW), whereas laggards were, i) NATF (down 16.2%WoW), ii) SERT (down 13.6%WoW), iii) AGIL (down 8.5%WoW), iv) KEL (down 7.4%WoW), and v) COLG (down 7.4%WoW). 

 

Outlook

 

With valuations remaining stretched, index is expected to tread sideways in short term where cherry picking should be followed in our view. After a disappointing FY20, sectors like Cement and OMC are expected to witness change of fortunes in 1QFY21 hence activity will be centered on the aforesaid sectors. However, main risk on the horizon remains increasing COVID cases, possibly pointing towards second wave while worsening rift between government and opposition is increasing noise and it is expected to increase further as we move closer towards commencement of country-wide rallies.​

AKD Research