With merely 15‐days remaining before the year end, the year to date benchmark return is still in the negative territory at 4.4 per cent while average daily trading volume is hovering at around 81m shares lower by 33 per cent YoY. The investment arena seems fairly subdued, hence unable to attract investors. A number of stocks posted healthy returns. The global economic woes alongside local economic and political volatility continued to negatively impact the investor sentiment. The FBS recently disclose the inflation number where CPI inflation stands at around 11.1per cent and MoM inflation of merely 0.29 per cent. The current month inflation is the lowest inflation for the current fiscal year as well as the last few fiscal years. The year to date monthly average inflation is around 1.09 per cent which is lower by 20bps over the preceding month. During the last monetary policy SBP disclosed that current account deficit, IMF payments, export growth and fiscal deficit were the major concerns. After revision of inflation base year from CY01 to CY08, we believe SBP may not consider inflation as a major problem. Furthermore the current slide in rupee parity against dollar also depicts the same concerns, said Bilal Asif at HMFS.
Over the last couple of months, the actual issue for the bourse is the senate elections rather anything else. PPP is likely to be the major beneficiary of the senate elections and this will definitely affect the upcoming regime policy making power. During the short week after Ashura holidays, the Zardari issue impacted the market sentiment as on Wednesday the index registered a loss of 88 points, but soon after the benchmark recovered from the negative sentiment. The volumes remained thin as average daily volume was merely 43m shares. The index heavy OGDC provided the market the helping hand to recover. Engro was unable to grow as gas issues and disruption hit the Enven plant. With merely 15‐trading days left before the year end we may witness the same dull sentiment continuing.
Money Market Roundup: Compression in NFA has contained the growth of money supply to 1.32 per cent despite unabated government borrowing bolstering the overall NDA. Seasonal accretion in private sector credit off-take further lifted the NDA during the preceding week while stock of government borrowing for budgetary support has swelled to Rs3.3t. Amidst absence of major inflows, hefty import payments and FPI outflows have resulted in reserves attrition whilst the Rupee has already eroded by 3.9 per cent against the green back even before the end of 1HFY12.
With panning out of base effect for 2HFY12, inflation numbers may be aggravated further with sharp depreciation of the rupee. After SBP kept the key policy rate unchanged for next two months, benchmark 6 month KIBOR has jumped back up by 17bps to 11.94 per cent. Yields in primary market are likely to hover around the same level in the upcoming auction as inflation remains a potent threat amidst weakening of Rupee, said Salman Vidhani at HMFS.
Despite political and regulatory uncertainties, the KSE-100 index witnessed a 92 point jump (+0.8 per cent WoW). Attractive valuations lured in local investors with average daily volumes increasing to 44m shares (+18 per cent WoW). Nonetheless, in a week which saw three trading sessions due to holidays, the index fluctuations reflected the pressure of political instability in market sentiments. Foreigners continued with their cautious approach offloading a further USD 4.3m worth of equity holdings. Political complications started with the President’s sudden departure to Dubai on the back of health issues. This absence led to a rise in tensions between the parties with the opposition intensifying their stance for political upheaval. This added to the already flaring ‘memogate’ scandal which has brought Pak-US relations to a new low. In addition, regulatory issues – with SECP’s surprise concept paper drawing minimum capital requirements of PKR 400m in pure equity for brokerage licenses – caused investors to adopt negative sentiments with concerns over the substantial quantum. However, SECP in its paper proposed tax incentives for new listings, which was a positive for local investors. Furthermore, talks over formalizing CGT collection rules initiated between SECP and a KSE delegation that could potentially result in a formalised collection channel for the tax, mechanism of which remains ambiguous till now.
Stock Specific Activity
It was no surprise that fertiliser stocks came into the limelight once again given further gas issues which proped up. The gas supply to all fertiliser plants on the SNGPL network was cut indefinately; hardly a week after restoration of feed supply to ENGRO’s new plant. As a result, a substantial urea price increase becomes imminent. However, as the curtailment period is not known, a sufficient price increase in itslef is difficult to calculate. As a result, ENGRO fell 9 per cent as the chemical sector underperformed the market by 1.4 per cent. FATIMA on the other hand reslted in ending up the beneficiarry as any price increase of urea would be supremely beneficial for its product (CAN) given gas supply has been constant.
Forward Looking Expectations
Resolution of the gas issue is critical for chemical stocks recovery. Though the period of curtailment has not been specified, it is shared that the shortage has linkages with growing domestic consumption during winter seasons. Coupled with sovereign debt repayments, this is expected to pose a drag on FX reserves, in turn, exchange rate, which has already seen a new low of 89 against the USD. Further deterioration can be expected, which would favor export oriented companies in the coming few months. Having said that, regulatory developments, especially with regard to the passing of minimum capital requirement for brokerages would have an overbearing impact in determining the way market sentiment moves in the coming week.
