EUR 14.40 For Business Accounts Only

Stock Smart Weekly (Mar 15,2024)

Weekly Review
Market remained volatile during the week with a sharp correction of <1.7kpts mid-week followed by some recovery during the second-last trading session. Overall, KSE100 index lost 977pts/1.49% during the week to close at 64,816pts on Friday. With the new cabinet just taking office this week, progress on the IMF SBA’s second review has begun. The arrival of the IMF team has led to the circulation of conditionalities and requests across various economic sectors, most of which indicate long-term reforms and conditions, setting the tone for long-term programs. Alongside conditions set in the SBA, additional conditions of expanding the tax net, removing specialized tax regimes, reviewing the NFC award, halting gas supply to power producers, and terminating gas subsidies for fertilizer plants all seem to be long-term goals that are put forward by the lender to possibly include in the FY24-25 budget. However, with the last quarter's tax target appearing difficult to meet, the possibility of a mini-budget cannot be ruled out if a proper plan for tax collection is not presented to the IMF. Moreover, new petroleum minister, during a media interaction, expressed the idea of curbing circular debt and initiating immediate power sector reforms. Additionally, with MPC meeting imminent, food prices have begun to soar due to Ramadan, which is expected to contribute to an increase in this month's CPI compared to the previous month.
With inclusion of Ramadan, market participation also slows down, with the daily traded volume averaging 323.5mn sh compared to 412mn sh in the previous week, down 21.5%WoW. Other major news flows during the week included; 1) External debt servicing consumed $2.4bn in 1st quarter, 2) Pakistan to repay $4.33bn in debt servicing in last quarter of FY2024, 3) $3.2b received in financial assistance in July-Jan period, and 4) Cut-off yield of PIBs declines. Sector-wise, Transport, Exchange traded funds, and Close-End mutual fund were amongst the top performers, up 13.7%/1.7%/1.7%WoW respectively. On the other hand, Inv. banks/securities cos., Leasing companies, and Cable & Electrical goods were amongst the worst performers with a decline of 8.0%/7.0%/4.7%WoW. Flow wise, major net selling was recorded by companies with a net sell of US$2.5mn. On the other hand, Foreigners absorbed most of the selling with a net buy of US$2.7mn. Company-wise, top performers during the week were, i) PTC (up 8.0%WoW), ii) THALL (up 6.3%WoW), iii) LCI (up 4.4%WoW), iv) MEBL (up 2.4%WoW), and v) LUCK (up 2.3%WoW), while top laggards were, i) DAWH (down 13.8%WoW), ii) PSX (down 8.3%WoW), iiI) PAEL (down 7.0%WoW), iv) YOUW (down 6.9%WoW), v) NESTLE (down 6.8%WoW).

Outlook
Looking ahead, upcoming MPC meeting scheduled for Monday will be in the limelight. Although the prevailing consensus suggests a status quo, market is likely to remain largely unaffected as this expectation is already priced in. However, if there is a surprise rate cut, it could unlock funds towards debt-heavy cyclical sectors and sustain the upward momentum. Furthermore, with the recent trend of flows tilting towards smaller stocks with weak earnings, any correction could erase all their gains. Therefore, we recommend that our investors focus on strong valuation main board stocks, especially those with attractive dividend yields.