EUR 13.85 For Business Accounts Only

Stock Smart Weekly (Jun 24, 2022)

Weekly Review
In the outgoing week, newsflow was dominated by the accord between Govt. and the IMF. On
Tuesday, it was announced that an agreement had been reached, in which the Govt. revised
the FBR collection target for FY23 from PkR7.0tn to PkR7.4tn. Furthermore, today the PM unexpectedly
announced that a 10% Supertax will be imposed on large sectors in FY23, causing the
KSE-100 to lose 1,665 points in one day, closing at 41,052pts (-2.6%WoW). Average volume for
the Index surged to 300.5mn shares (+72.6%WoW) supported by today’s grand sell-off. Other
major news flows during the week were, i) loan agreement signed with consortium of Chinese
banks for US$2.3bn, ii) FDI shrank 29%YoY in May, iii) cost of power generation surges by 131%
YoY due to high fuel costs, iv) May banking spread plunges 42bps MoM, v) GoP mulls pledging
five federal assets to issue Sukuk, and vi) ECC approves PkR149bn in payments to IPPs and KE.
Sector-wise, top performing sectors were; i) Vanaspati & Allied industries (+6.5%WoW) ii) Power
(+4.7%WoW), iii) Tobacco (+3.5%WoW), iv) Insurance (+2.4%WoW), and v) Refinery (+2.2%
WoW), while the least favorite sectors were; i) Automobiles (-4.0%WoW), ii) Textile (-3.9%
WoW), iii) Cement (-3.7%WoW), iv) Close-end mutual fund (-3.5%WoW), and v) Banking (-2.9%
WoW). Stock-wise, top performers in the KSE-100 were; i) POML (+18.7%WoW), ii) EFUG
(+13.5%WoW), iii) KEL (+10.0%WoW), iv SML (+5.6%WoW), and v) PAKT (+4.3%WoW), while
laggards were; i) CHCC (-9.6%WoW), ii) KTML (-9.4%WoW), iii) GATM (-8.1%WoW), iv) MLCF (-
7.4%WoW), and v) JVDC (-6.8%WoW). Flow-wise, Insurance companies remained as the net
sellers, offloading US$8.4mn followed by Foreigners (US$2.4mn), Mutual funds (US$1.1mn),
NBFCs (US$0.7mn) and Companies (US$0.1m). While Individuals, Banks, Brokers, and Other
organizations were on the buying side, with a net buy of US$7.0mn, US$2.1mn, US$0.2mn, and
US$3.4mn respectively.
Outlook
The Supertax imposed on large sectors has come as a major shock to all players in the market.
With profitability decreasing by ~10% for these sectors, the market sentiment is surely negative
as players look to exit their positions. Add inflationary pressure and rising interest rates to the
mix, and this creates a strong bearish environment for the market. With that being said, the
agreement with IMF is crucial for the country, with further financing now expected to be available
from Worldbank, China, and KSA which will alleviate the downward pressure on the currency
along with supporting the depleted forex reserves, hence having the potential to trigger a bull-run
in the short term. We prefer the IT and Pharmaceutical sectors based on their exemption from
the Supertax, and advocate for gradual accumulation on fundamental stocks in these sectors.