The KSE-100 Index ended 134 points plus (+1.1% WoW) despite an initially bullish 228 point jump on the opening day spurred by surprise slashing of the policy rate by 150bps. This monetary easing resulted in an increase in investor activity in the initial trading session, with Av. daily volumes coming out to 61.3mln shares (+52% WoW). The index gained a flattish trend during the week due to fresh concerns over the macroeconomic picture of the country as well as pressure of foreign selling. Foreign investors remained net sellers of USD 2.9mln while the market was mainly supported by positive investments by Mutual Funds and Individual investors. The continuous foreign selling can be explained by the improved performance of almost all Asian markets, which resulted in portfolio rebalancing amongst Asian indices. Moreover, spurred by the large interest rate cut, mutual funds have been quick to rebalance their portfolios in the search for attractive dividend yields now that the cut-off yield on 10-year PIBs declined 101bps to 12.24%. Nevertheless, the excitement of investors was muted owing to weak macroeconomic data released – Remittances registering a 32% MoM decline and the trade deficit widening by 29%.
Increase in fertilizer prices and the upcoming corporate announcements triggered a bullish rally in Fatima, FFC and FFBL, all outperforming the market by 14.8%, 8.8% and 4.2% respectively. We estimate FFBL to yield an EPS of PKR 9/share along with a healthy dividend announcement owing to less than expected decline in urea sales and higher proportion of DAP sales. Accordingly, FATIMA is also expected to post substantial profitability benefitting from the urea price hike. APL also outperformed the market by 11.6% as investors await the result announcement of Attock group companies next week. However, banking companies – mainly NBP, MCB, HBL – underperformed the market due to fears of reduced banking spreads following the rate cut. These fears seem to be overplayed as the banks immediately announced a cut in profit rates on their fixed deposits, which account for a relatively low proportion of their deposit mix.
As predicted, the more than expected monetary policy rate cut spurred growth and added liquidity in the market. Companies having high leverage, such as ENGRO and DGKC, are the immediate beneficiaries of this move as their reduced finance cost eases pressure on profitability. Another important development to have taken place is the recent granting of MFN status to India. The accessibility of the larger market bodes well for our exports, especially of textiles, cement, and agricultural implements. Although the rupee hitting a two week high is an anomaly given a wider deficit and lower remittances, we expect some stabilization which would mute the impact for exporters if trade commences. Nevertheless, developments in this are expected to stir the market going forward.