LAHORE - The equity market sustained its positive momentum from last week as Pakistan successfully completed fourth and fifth reviews with the IMF. The market also pinned its hopes on a policy rate cut by the Central Bank in the upcoming Monetary Policy Statement (MPS), which is expected to be announced later at the weekend. Hence the benchmark KSE-100 index closed up 1.3 per cent WoW at 31,344 points with average trading volumes edging up by 6.1 per cent WoW to 283mn shares/day. Government of Pakistan shelved its plans to offload 10 per cent of its shareholding in Oil & Gas Development Company (OGDC) as investors’ response remained lukewarm due to falling international oil prices. As a result, index heavy-weight OGDC gained 3.1 per cent WoW. Meanwhile, investor interest was witnessed in the textile sector on the back of (1) expectations of a favorable 5-year textile policy (expected to be announced later this month) and (2) suspension of gas load management plan in Punjab. Other key highlights of the week were: (1) Cement sales rising by 5.2 per cent YoY in 4MFY15, (2) Trade deficit clocking in 49 per cent YoY higher in 4MFY15, and (3) Remittances rising by 15.21 per cent YoY to US$6.1bn in 4MFY15.
Regarding textile sector, the experts said that ddeclining cotton prices, shrinking primary yarn margins and lower volumes indicate another tough year for Pakistan textile sector. Appreciation of Pak Rupee against US-Dollar by 5 per cent in last 12 months has made Pakistan textile products less competitive in the international market. Furthermore, continue influx of Indian yarn in Pakistan despite imposition of 5 per cent import duty is hurting local players. However, likely cut in discount rate in the future may provide some relief.
Generalized Preference Scheme (GSP) Plus status awarded to Pakistan is yet to show its positive impacts. Appreciation of PKR against USD and subdued international demand due to likely shift in China cotton policy are the major reasons for delay in positive impact of GSP Plus. Nishat Mills (NML) having 3 per cent share in Pakistan’s total textile exports with more than 75 per cent of revenue from exports is likely to be one of the key beneficiaries of GSP Plus status to Pakistan in the long-run.
Investment portfolio of NML is worth Rs54.7bn (Rs156/share). This portfolio contains group companies such as MCB Bank Rs24.6bn (46 per cent of total portfolio), DG Khan Cement Rs18.8bn (24 per cent of the portfolio), Nishat Power Rs5.6bn (16 per cent of the portfolio), etc.
During the week Fauji Fertilizer Company (FFC) reported 9M2014 earnings of Rs13.0b (EPS of Rs10.19), 13 per cent YoY lower primarily owing to higher GIDC cost. Even though revenues edged up by 5 per cent YoY, increase in GIDC cost led to contraction in gross margin by 8ppt. This is indicative of weaker pricing power of the industry due to continued gas supply to Engro Fertilizer (EFERT). Moreover, possible concessionary gas to EFERT at US$0.7/mmbtu remains a threat to FFC margins. Experts said that MSCI, a leading provider of investment decision support tools worldwide, announced results of Semi-Annual Index Review for MSCI Equity Indices with no addition or deletion for Pakistan in MSCI Frontier Markets (FM) Index.  Experts said that in MSCI FM Index, there will be 2 companies, namely Electrica (Romania) and Kinhdo Corp (Vietnam), will be added while Gulf Bank (Kuwait) will be deleted.  Pakistan’s new weight in MSCI FM Index is not yet available.
To recall, 4 additions and 1 deletions from Pakistan were made in May 2014. Moreover, Qatar and UAE were upgraded from FM to Emerging Markets (EM). As a result, Pakistan’s weight in MSCI FM Index increased to 7.0% (as of Oct 31, 2014) compared to 4.1% in May 2014. In MSCI FM Small Cap Index, 3 companies (INDU, LPCL, MUREB) from Pakistan have been added while no company has been deleted.