LAHORE - With rising volume benchmark index closed 1.88 per cent up. Key highlights remained result announcements and minor floods after heavy monsoon rains. In spite of fall in international equity prices, local bourse witnessed net USD13.4mn inflow in last 3 trading sessions. Index heavy weight OGDC, PPL and MCB rallied while cement stocks saw profit taking due to expected low off-take amid floods in the country. Attock group and BAFL announced their June end results where POL and ATRL announcement below investors expectations earnings. Going forward, market is expected to consolidate and may move with corporate announcements.
Experts said that the KSE index shrugged off its Ramazan languor this week, notching up a 1.9 per cent WoW return with trading volumes at the local bourse also ticking up by 22 per cent WoW to 221 million shares.
The same was despite an uncertain outlook on the upcoming August 2013 Monetary Policy Statement (MPS) – likely next week where we maintain our status quo on interest rate call. Market opinion meanwhile appears divided on the prospects of an interest rate hike, where (1) inflation ticked up to 8.3 per cent YoY in July 2013 (from 5.9 per cent a month prior) but real interest rate is still positive and (2) media reports suggest the IMF is pushing the case for a 100-150bp rate hike.
While Banks (via spreads) and Cement (financial costs) took their lead from MPS expectations, the E&P sector remained in focus on the back of rising international oil prices as tension flared in the Middle East. Positive sentiment at the Karachi Stock Exchange was lent strong support by rising foreign portfolio investment inflow as well. From a macro and market perspective, key takeaways of the week included: (1) strong July 2013 remittances of US$1.4 billion (+16.6 per cent YoY supported by Ramadan inflows); (2) tepid July 2013 volume numbers across industries as auto sales grew by 1 per cent YoY and petroleum product sales fell by 2 per cent YoY and (3) focus on ongoing heavy rains and floods.
The latter, while not at critical levels yet, is a key point to look towards for FY14E agri growth and near term inflation outlook. Corporate results this week as detailed as below:
Experts said that capital gains reforms were the headline stories in the initial period of the year. However, we believe the level of investors’ confidence that was witnessed in the outgoing fiscal is also attributed to significant reduction in the policy rate that has facilitated the funds flows towards equity market.
Since July 2011, policy rate has been reduced by 500bps to 7 year low to 9.0 per cent amid reduction in the inflation figures (May CPI stood at 5.1 per cent, 9 year low) that has enabled the policy makers to concentrate on growth. This move has not only aided in improving dynamics of highly leveraged sectors such as cements and textiles, but has also channeled funds flows from debt securities to equity market.
At present, foreigners hold nearly US$4 billion worth of shares in Pakistan market, which is 30 per cent of free-float (7 per cent of market cap) as per the Central Bank statistics. On the back of historic political transition and with a hope of change in political canvas, foreigners in FY13 grossly put US$1.6 billion in the market and sold US$1.0 billion.
This resulted in net foreign buy of US$567 million (US$358 million excluding ULEVER buyback) as of June 27, 2013, which compares favorably against net selling of US$190mn (US$61 million excluding Hubco block deal) in FY12.