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Stock Smart Weekly (Dec 31, 2021)

StockSmart                       

Weekly Review                                

In the closing week of CY21, market remained almost flat throughout the week, gaining just 1.08%WoW to close in at 44,596 points level. This took the cumulative performance throughout CY21 to 1.92% whereas the dollar adjusted return currently stands at –ve 8.52%. The volumes also remained flattish on WoW bases where ADT was recorded at 217.99mn shares as opposed to 215.43mn shares, down 1.2%WoW. The performance during the week was dictated by the news-flows related to possible resumption of the dormant IMF program where the major event remained the announcement mini budget in the national assembly as well as the SBP amendment bill, the pre-conditions related to the program. The supplementary finance bill clearly reflects authorities’ determination to clamp down the imports and promote local manufacturers, targeting to raise PkR343bn in the meantime. In the listed space, select auto manufacturers (+1,000cc) stand out to be the biggest beneficiary along with refineries. In addition to this, the tabled SBP bill has largely catered to IMF recommendations. Other key market related news during the week were i) PSX intending to promote retail trade in debt securities market, ii) Inflow of US$300m from ADB for energy sector reforms, iii) Fertilizer sector moving up on the priority list of gas supply, now at par with export sector, iv) Govt. deciding to substitute power and RLNG tariffs for textile industry, v) T-bills yields witnessing model fall after SBPs 63 day OMO, vi) SBP FX reserves falling US$298mn, and vii) Govt. suggesting tariff of PkR839/mmbtu for SNGPL based plants. Top performers of the market included i) GATI (+16.7%WoW), ii) SCBPL (+15.8%WoW), iii) MUREB (+14.2%WoW), iv) KTML (+11.2%WoW), and v) PIOC (+9.8%WoW). Meanwhile laggards included: i) STJT (-24.8%WoW), ii) JLICL (-8.4%WoW), iii) BNWM (-4.7%WoW), iv) ABOT (-4.5%WoW), and v) SML (-4.1%WoW). Volume leaders during the week included i) WTL (76.25mn), ii) TRG (71.82mn), iii) KEL (59.96mn), iv) PRL (+41.01mn) and v) TREET (34.5mn). In terms of the top performing sectors, Tobacco was the top performer, returning 10%WoW, followed by Refineries (+9%WoW and Leather & Tanneries (+6%WoW). Flow wise, foreigners turned net buyers with an inflow of US$8.1mn followed by companies with net inflow of US$6.04mn cushioning the sell-off by Banks (US$3.28), Mutual Funds (US$3.1mn) and Other Organizations (US$2.46mn).

Outlook

With the announcement of mini budget and SBP amendment bill, uncertainty over the macros has started to vanish, paving way for the next rally in upcoming weeks. In the upcoming year, we expect the market to re-rate its valuations once the IMF program starts, flirting with 61k level by the end of CY22. We also expect the commodities to take a breather in CY22, helping our external accounts to stabilize where we expect the CAD in FY22 to hover at ~US$15bn. On the monetary front, we expect the tightening to be over by 1HCY22 with cumulative hike of 125bps in a phased manner. With this, the market may replicate the move of CY05-08 where it gained over 112%. On the flipside, if the IMF program is delayed due to any reason, we can expect the market to witness another meltdown, hence, the market players will be closely watching the upcoming sessions.

AKD Research