With the onset of the New Year the benchmark performance carried the same tendency losing 1.96 per cent with average daily volumes of merely 42m shares. The PKR continued to depict weakness against USD suspending the FIPI while economic concerns kept foreign investors away from our market. Non availability of foreign fuel and cautious approach adopted by local investors dampened the investment sentiment across the board. Domestic investors feared hefty selling from foreign fund managers may erode the stock value and result in re-rating of market multiples. Nevertheless heated political drama and regular call from left wing parties for early elections kept increasing the uncertainty. As far as economic numbers are concerned, we from time to time indicated external account weakness, fiscal deficit and USD1.1b payment to IMF that would be crucial in 2HFY12. In such a situation rule of thumb for investors is to stay at bay when uncertainty prevails.
It is pertinent to note for prudent investors to adopt value investing approach and capitalise on buying opportunities in uncertain conditions.
Hence we recommend investors to wait for the right time and right price to strike to maximise the upside, said Bilal Asif at HMFS. ‘We believe the current year would be the toughest year after the 2008 debacle for the stock market in the light of political uncertainties and economic challenges ahead,’ he added. SBP clearly stated the widening current account deficit may impact the country foreign exchange reserve. Managing the fiscal deficit within the targeted level seems almost impossible. If we only consider the oil bill which may surpass the targeted level of $12.07b, it may single handedly enhance the current account deficit by $2b-3b, he added.
The decline in the index can be attributed to the steep fall of index king OGDC which slid down by PKR13.85/share contracting the index by at least 300 points. Furthermore the helping hand to OGDC was provided by Ulever and Nestle which post a declining trend. From the onset of new calendar year the banking sector enjoy the limelight with FABL, NBP, MCB, MEBL and ABL were among the top few gainers. With dividend announcement likely with the final result of the major bank kept supporting the benchmark attrition. Engro and FFC enjoy the high tide after announcement of price hike after Engro announced price hike of PKR210/bag. We believe the foreign selling of USD6.57mn kept the benchmark suppressed and it will continue to drag the index performance, he added.
Money Market: Government announced a target of Rs675b to be raised during 3QFY12 against the maturities of 572.5mn, thereby causing net borrowing of 102.5b. The incremental borrowing from the banks will only partially retire the government borrowing from SBP which stood at 212b on the week ending December 23, 2011 against net zero borrowing target. Expansion in money supply has picked up pace with an expansion of 4.64 per cent YTD crossing Rs7 trillion mark. Data released by FBS indicated, a M/M deflation owing to seasonal effect and heavy base which caused CPI to slide down into single digit to 9.75 per centYoY for Dec-2011. However panning out of base effect later during FY12 and rise in energy prices along with PKR devaluation is likely to aggravate CPI numbers ahead. Amidst heightened risk to external account and attrition in foreign flows, PKR has depreciated by 4.7 per cent again the greenback while FX reserves continue to trend downward to $16.8b. Therefore we foresee the SBP to maintain status quo in the upcoming MPS to be held end of January 2012, said Salman Vidhani at HMFS.
LAHORE
AAHYAN MUMTAZ
The first trading week of the new year started with an anti-climax of sorts as negative sentiments dominated with the KSE- 100 Index losing 214 points (-2% WoW). Activity was volatile during the week, though witnessing a marginal improvement as investors were spurred by local news flows regarding saving rate and inflation rate drops. Regardless, average daily volumes of 42mln shares indicated the cautious stance preferred by investors. Infrastructural issues and political uncertainty have gripped the country and taken limelight in shaping investor confidence. The imposition of Gas Infrastructure Development Cess (GIDC) and gas tariff hike raised concerns over maintained profitability of industrial corporate as they look to absorb this price shock. Ranging from 14 per cent-207 per cent gas price hikes, the issue is further compounded by the non-availability of gas, even for those who are willing to pay at a higher rate, due to consumer, power, and household demand. Further, the political scenario continues to dampen expectations even though macroeconomic data flows suggest a move towards recover. However, the CPI dropping to single digits and a cut in the NSS rate, failed to instill confidence in investors as these are not expected to result in a monetary policy rate cut in the coming MPS announcement, hence have little impact on company profitability.
Stock Specific Activity
Fertilizer stocks were in the limelight owing to ENGRO’s urea price increase at the very start of the week following increase in gas prices. Other fertilizer manufacturers followed suit accordingly, leading to the fertilizer sector outperforming the index by 4.8 per cent. However, it is to be noted that ENGRO’s new plant, as per the ferilizer policy would be receiving gas at the subsidized rate and would not be impacted to the same degree as older plants; similar to the case of FATIMA. Therefore, the two stocks saw the most interest as far as volumes are concerned. Furthermore, the banking sector as a whole witnessed positive improvement, with NBP, MCB, and UBL emerging as the top stocks. This is in the wake of the NSS rate cut which indicates possibilities of higher deposit flows towards these banks offering attractive rates.
Forward Looking Expectations
The issue of gas and its solutions as the government tries to search of them are expected to dominate the market in the coming week. Closely followed issues are likely to be news flows regarding progress on the Iran Pakistan gas pipeline deal and/or restoration of gas supply to industrials. On this topic, given that urea price hike has occurred and international price gap has diminished, it is unlikely another hike will be on the cards. In such a case, activity in fertilizer is expected to take a back seat for the coming week at least. We expect banking sector and oil & gas to dominate; the former on the basis of dividend plays and the latter on the basis of sharp increasing crude prices internationally.
