Hammad Malik
Contributing factors
Foreigners emerged as net buyers for the first three sessions before shifting gears slightly on Thursday and then booking positions heavily on Friday to become net sellers of $11.5m for the week
Dull activity kept the investors hesitant as the PSX-100 index shed 37 points down week-on-week amid low volumes to close at 39,151 points. The benchmark index continued to consolidate above the psychological barrier of 39,000 with result announcements proving to be a major support.
Foreigners emerged as net buyers for the first three sessions before shifting gears slightly on Thursday and then booking positions heavily on Friday to become net sellers of $11.5m for the week. It seems as if foreign participants are anticipating a downward move towards the 37,500 mark before the index gears up to inch closer towards 40,000 index points.
Another factor which should not be ruled out for this selling spree and the resultant pause at the bourse is the dip in oil prices in the commodity markets which kept the oil sector under check. Oil sector stalwarts PPL and OGDC lost 2.63pc and 1.66pc values respectively during the week, even though the activity hinted at selling pressure being absorbed.
Nevertheless, launch of Honda’s new Civic and expectation of an outstanding result from all car manufacturers kept the interest in automobile sector alive, with PSMC (7.1pc↑ WoW), INDU (4.8pc↑ WoW) and HCAR (3.5pc↑ WoW) closing positively on a week on week comparison.
Result previews
A leading brokerage firm’s research desk shared the result previews of Fauji Fertiliser Company (FFC) and Fauji Fertiliser Bin Qasim (FFBL)
Fauji Fertiliser Company Limited (FFC): HY16 EPS likely to clock in at PKR3.75
Fauji Fertiliser Company Limited (FFC) is scheduled to hold its board meeting on July 27, 2016 to announce financial results for the period ended HY16. It is expected that the company will post (EPS: PKR3.75) HY16 compared to (EPS: PKR6.5) HY15, representing a decline of 42pcYoY. The decline in earnings was primarily on the back of
- 24pc YoY decline in revenue amid slowdown in urea offtake,
- 7ppsYoY lower gross margins due to decline in retention price and
- 7xYoY higher finance cost following increased borrowing to finance working capital requirements.
Fauji Fertiliser Bin Qasim Limited (FFBL): HY16 LPS to clock in at PKR1.7
Fauji Fertiliser Bin Qasim Limited’s (FFBL) board of directors is scheduled to meet on July 26, 2016 to announce the financial result for HY16 wherein the company is expected to post a loss of PKR1.6b (LPS: PKR1.7) compared to earnings of PKR0.8b (EPS: PKR0.81) in the same period last year. The notable decline in earnings is primarily attributable to
- 51pc YoY decline in sales following a demand slowdown across all Fertilisers
- decline in primary margins due to a significant fall in DAP prices and
- Recognition of super tax in the period
Iranian Cement; capacity additions mar cement exports
The cement exports during June 2016 were 387,060 tons against 552,867 tons during June 2015, showing a massive decline of 30 pc. According to the data released by All Pakistan Cement Manufacturers Association (APCMA), exports from the country massively declined by 18.38pc to 5.87 million tons during the fiscal year 2016 compared with exports during last fiscal year that were 7.2 million tons. Exports to India have increased but the decline in exports to Afghanistan by 15.1pc and via sea to other countries by 32.68pc affected the overall exports of the country.
Experts opine that presence of cheap Iranian cement in Africa and capacity additions in the region are fueling competition. They also fear that Iranian cement might make inroads in the Pakistan market as well, given low border checks and under invoicing being treated lightly.
Industry circles fear that additional excise duty imposed in federal budget 2016-17 might dampen the construction activities. They said that there was no need to increase the tax as cement is already the most heavily taxed commodity in Pakistan.
A spokesperson of APCMA was of the opinion that provision of freight/transportation subsidy by the government will help them compete and win back their position on the global market.
Foreign reserves stable above $23b, FDI rises on China’s backing
According to State Bank of Pakistan’s data, foreign reserves of the country are $23.1 billion, ranking Pakistan at the 55th position out of 187 countries. Stable reserves will ensure that the economy’s outlook will continue to improve, especially after it has regained its status as an Emerging Market.
According to SBP, Foreign Direct Investment (FDI) clocked in at US$1.3b, witnessing 39pc YoY increase. This was in-line with expectations. The increase is primarily due to 130pc YoY higher inflows from China, pushing the FDI graph up. This substantial increase can be related to the China Pakistan Economic Corridor and other energy sector projects being undertaken by Chinese firms in Pakistan, all being initiated in FY 2016. Furthermore, the second highest FDI was from Norway, with the amount totaling to $172.3m.
Unemployment rates on the fall
With all bases covered well for an economic take-off, it seems evident that the unemployment rate in Pakistan will drop further towards the 5pc mark. This is a positive indication for investors, hinting at an increase in both GDP growth rate as well as GDP per capita over the next two years. With inflation rates dropping towards lowest levels, an increase in employment levels will prove to be an ideal situation for the country.
