EUR 9.11 For Business Accounts Only

Stock Smart Weekly (Sep 02, 2022)

StockSmart                       

Weekly Review                                

The bourse witnessed a volatile week as Pakistan continues its relentless battle against deadly floods triggered by the heaviest monsoon rains in a decade which have killed almost 1,200 people and submerged one-third of the country, where several organizations announced aid globally. Although, there was respite due to news of the IMF receipt confirmation and crude oil falling by ~US$6/bbl on the back Chinese economic weakness, hawkish FED stance and reemergence of Iranian supply. The index fell by 283 points (-0.66%) to close at 42,309 on Friday, while activity remained slow/flat falling by -15.4% compared to the previous week. On the macro front, PkR/USD remained volatile, ranging between ~218-222/USD, gaining 0.76% during the week. This comes on the back of IMF’s board decision to restart Pakistan’s EFF facility, with the receipt confirmation coming on Wednesday, resulting in currency rebounding from its July’22 highs of PkR240/USD. Furthermore, CPI surged to a multi-decade high of 27.3%YoY during Aug’22, as authorities continue to warn massive flooding in the country could exacerbate already skyrocketing prices, especially food items. Trade deficit for Aug’22 stood at US$3.5, down 27%YoY, while FX reserves stood at US$7.7bn on 26-Aug. Market participation remained very dull where average daily turnover decreased 15.4% WoW to ~211.3mn shares in KSEALL-share index. On the commodities front, prices of MS/HSD stood at PkR235/249, as Govt’ ended the month by increasing petroleum levy on MS. Other major news flows during the week were; i) Pakistan is weighing the option to seek an emergency loan from the IMF, estimating damages to stand at PkR2.5tn and GDP growth to slow down to just 2% during FY23, ii) The Onsite Inspection Team of the Financial Action Task Force (FATF) is all set to visit Pakistan in the first week of September, iii) IMF on Monday revived Pakistan’s progamme and its board approved the $1.16 billion loan, iv) The FBR has provisionally collected net revenue of PkR489 billion during August 2022 against the target of PkR483 billion. Sector-wise, amongst mainboards, Leather & Tannaries, Cements and Paper & Board companies were amongst the top performers, up 8.3%/3.9%/3.3%WoW respectively. On the other hand, Tobacco, Transport and Refineries was amongst the worst performers with a declines of 7.1%/6.6%/% WoW. Flow wise, major net selling was recorded by Insurance (net sell: US$7.38mn). On the other hand, Individuals and Banks absorbed most of the selling with net buy of US$2.38/3mn. Stock wise, top performers include, i) SRVI (+18.3%WoW), ii) KOHC (+14.6%WoW), iii) FABL(+12.7%WoW), iv) CEPB (+8.7%WoW), and v) JVDC (+7.7%WoW), while top laggards were, i) POML (down 18.1%WoW), ii) NML (down 8.2%WoW), iii) PAKT (down 7.1%WoW), iv) PSEL (down 7%WoW), and v) DAWH (down 6.5%WoW).

 Outlook

The outgoing week saw confirmation of IMF’s tranche receipt, while other inflow commitments from friendly nations resulted in the domestic currency standing strong. Although, impending near-term inflation is expected to wreak havoc, especially on the food/energy front, creating an overall shaky sentiment. Until FX reserve come toward a more secure position (import cover currently stands at 1.1x), domestic currency is expected to remain volatile, subsequently keeping investor confidence muted. However, with the economy slowing down—an intended outcome of the SBP’s contractionary policies—and the effects of floods across the country, could add further fuel to the fire. However, recent slump in commodity prices, especially oil may be a positive development for country’s external account, pushing CAD to remain on the lower end. We recommend market participants to stay cautious and focus on defensive plays. Any good bull run should be taken as an exit point.

 AKD Research