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Stock Smart Weekly (Dec 23, 2022)

StockSmart                            

Weekly Review                                

The political turmoil in the country, along with the continuation of the currency crisis, have led to weakness in the market during the week. To note, the KSE-100 index settled at 39,669pts at the end of the week, down by 1,632pts or 4% over the week, with the index dipping below the 40,000 level since late Jul’22. The weakness in the index was accompanied by a meager improvement in participation over the past week, with KSE-100 daily volumes averaging 180.2mn shares during the week, compared to 161.9mn shares in the earlier week. On the currency front, the PkR remained largely flat against the US$, depreciating by a paltry PkR0.71 per US$ over the course of the period. Other major news flow during the week included: i) Jul-Nov CAD shrinks 57pc YoY, ii) Govt may slap flood levy on non-essential imported items, iii) Definitive Agreement regarding the Reko Diq project was finalized ahead of the 15th Dec deadline, iv) Pakistan’s REER index falls to 98.8 in November, v) Gas sector 10-member body formed on circular debt settlement, vi) SBP lowers FY23 growth forecast, vii) International donors to seek over US$16bn for rehab of flood victims, viii) S&P lowers Pakistan’s sovereign rating, and ix) Super tax to be applicable in TY23 and onwards: SHC. Furthermore, the FX reserves held with the SBP fell to ~US$6.1bn, which is 1.1 months of import cover. Sector-wise, the top performing sectors were; i) Textile Weaving (+1.7%WoW), ii) Tobacco (+1.4%WoW), and iii) Insurance (+1.0%WoW), while the least favorite sectors were; i) Leasing Companies (-14.3%WoW), ii) Refineries (-11.0%WoW) and iii) Cable & Electrical Goods (-9.7%WoW). Stock-wise, top performers were; i) LOTCHEM (+10.2%WoW), ii) AICL (+5.2%WoW), iii) PSEL (+3.4%WoW), iv) PPL (+2.8%WoW), and v) PAKT (+1.6%WoW), while laggards were; i) PGLC (-25.8%WoW), ii) PAEL (-17.3%WoW), iii) TRG (-17.0%WoW), iv) ANL (-12.2%WoW), and v) PIOC (-11.4%WoW). Flow wise, Banks/DFIs were the major buyers with net buy of US$7.9mn, followed by Companies (net buy of US$5.0mn). On the other hand, Brokers and Individuals were major sellers during the week, with a net sell of US$3.8mn and US$3.8mn, respectively. Foreign Investors were sellers of US$3.3mn during the period.

 

Outlook

With the political uncertainty and currency crisis still ongoing and no definitive action from the IMF on the horizon, the market is expected to witness pressure in the near future. Sentiment is further worsened by the advent of security tensions in the Northern part of the country. In this backdrop, the need of the hour is to arrest the country’s dwindling reserves, which would be dependent on flows from multi-lateral and bi-lateral sources. Hence, any news regarding foreign inflows would be well received by the market. Furthermore, with inflation readings persisting at elevated levels in the foreseeable future, further tightening by the SBP is still on the cards, fear of which would likely to keep sentiment in the equity markets muted. Consequently, we advise clients to stay cautious while building new positions in the market.

 

 AKD Research