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Stock Smart Weekly (Oct 02, 2020)

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Weekly Review                                

The KSE-100 index stuttered in the start to 4QCY20 with the benchmark index slipping 3.9%WoW, continuing its recent waning spell to its third consecutive week (coming-off 5.9% during the period), at a relatively tepid clip, closing the week at 40,071pts, down only 1.5% CYTD (up 48.2% from 52-week low). Volumes took a breather (avg. daily turnover for the week at 390.9mn shares, down 16%WoW) after a strong run up. Key news flows impacting the market over the week included: 1) ongoing negotiations with IPPs gaining pace as parties argued over points of contention, while the GoP reportedly assessed options for up to PkR620bn in tariff savings over the next three years, 2) shortages in the Sui system are likely to range between 1,000-1,500mmcfd well above the GoP’s claims of 350-500mmcfd shortfall during upcoming winter months where utilities have announced curbs to CNG supply, residential customers , 3) the GoP’s revenue collection 1QFY21 surpassed the target despite missing the monthly target in September, in a sign of an improved fiscal picture, 4) the ECC of the cabinet approved an increase in gas tariff for specific commercial consumers and passing of fuel adjustment charges to end-consumers of electricity in a bid to raise additional revenue of PkR35-40bn for Sui utilities, and 5) GoP reportedly exempted builders from disclosing source of investment if they complete new housing projects within less than two years, in the latest move to operationalize the PM’s construction sector incentives for low cost housing development. Additionally, political noise built up over the week following the arrest of the Leader of the Opposition in the House Shehbaz Sharif after the Lahore High Court rejected his pre-arrest bail in a money laundering case, prompting some profit taking. Volume leaders during the week included: 1) HASCOL (305.9mn shares), 2) UNITY (160.4mn shares), 3) KEL (140.1mn shares) and 4) TRG (109.4mn shares). Stocks leading the performance board were: 1) EFUG (+2.5%WoW), 2) PSX (+2.3%WoW), 3) ICI (+1.6%WoW) and 4) SCBPL (+1.5%WoW), whereas laggards were: 1) HASCOL (-20.7%WoW), 2) UNITY (-16.0%WoW), 3) SHFA (-15.2%WoW), and 4) ATRL (-13.6%WoW).

Outlook

 

Entering the seasonally strong period for KSE-100 index performance (10yr monthly returns for October at +2.2%, +7.8% cumulative for 4QCY over same period) we advise investor to deploy a buy-the-dip strategy, with some shifts in sectoral allocations advised. Risks on the periphery include resurgence in COVID-19 headline risk (following US President Trump’s positive test result), and any rise in the political risk environment (likely overblown if PTI-led GoP continues its legislative and policy priorities).

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