Market holds steady with 3rd budget of FY19 around corner

LAHORE - After two positive sessions, carrying on the momentum from the previous week, the market lost steam midway, ending slightly higher at 39,306 points, up by 0.7 percent WoW. News flows regarding the upcoming reform package kept investors sideways during the week.

Volumes remained lower than the previous week for a large part, averaging 118m shares per day, while average daily traded value depicted a similar trend, ending down 14 percent WoW. During the week, outperforming sectors included fertilizer (+2.1 percent WoW), E&Ps (+1.3 percent WoW), and automobile assemblers (+1.6 percent WoW). Anticipation of new discoveries by Exxon Mobil in Indus Block resulted in PPL (+3.6 percent WoW) and OGDC (+1.9 percent WoW) closing the week in positive territory, given their stake in the joint venture. Meanwhile, HCAR (+22 percent WoW) and PSMC (6.4 percent WoW) of the auto sector were two of the best market performers during the week, despite lackluster volumetric growth (decline in case of HCAR) in monthly car sales, which was likely due to rumours of new measures to be taken in the upcoming reform package to restrict the import of used cars. Pharmaceuticals (+1.5 percent WoW) were among the stand-out sectors, buoyed by news of the Drug Regulatory Authority of Pakistan (DRAP) allowing a price-increase (up to 15 percent) to the sector, where GLAXO (up 8.6 percent WoW) and ABOT (+5.3 percent WoW) were the major winners in the sector. Other noteworthy news during the week included (1) Current account deficit clocked in a US$1.7b during Dec-2018, up 37 percent MoM, however down 4 percent YoY in 1HFY19, (2) Sui Northern Gas Pipeline Ltd (SNGPL) has cut gas supply to the industry and CNG sector, (4) Textile sector exports posted dismal growth of 0.68 percent YoY in Dec-2018, (5) Russia has offered to invest $2b in energy projects, (6) government is likely to abolish advance tax on sale and purchase of shares, and (7) ECC has tied car imports to duty payment in foreign currency.

Experts said that the KSE-100 index closed in the green this week, for the third consecutive week, gaining 258 points (or +0.7 percent), closing at 39,307 level. Positive sentiments were driven this week by the possibility of 3rd budget of FY19 which is expected to reduce/eliminate advance tax of 0.2 percent on brokers, rationalize group taxation system, ensure ease of doing business and reduce input cost for export oriented sectors.

With the possibility of GIDC resolution (50 percent waiver) on the cards, the fertilizer sector is expected to benefit the most. Resultantly, it was the best performing sector of the week as it added 135 points. It was followed by the E&P and tobacco sectors which added 80 points, cumulatively.

Foreigners selling for the week was US$9.42m vs. net buying of US$0.6m in the previous week. Among local investors’, individuals and mutual funds were net buyers of US$11m, cumulatively.

During the week, reserves held by the State Bank of Pakistan (SBP) dropped by US$148m on account of debt servicing and other official payments.

The government found another reason to sigh with relief as the crucial current account deficit (CAD) slipped slightly by 4.4 percent to US$7.98 billion, driven by a fourth quarter decline of 10 percent, according to data released by the State Bank of Pakistan (SBP).

Pakistan’s economic confidence fell sharply in the final quarter of 2018 as it continues to struggle with macroeconomic imbalances, according to the Global Economic Conditions Survey (GECS). Pakistan’s oil import bill jumped nearly 15 percent YoY to US$7.6b during 1HFY19 from US$6.7b in same period last year, Pakistan Bureau of Statistics reported.

State Minister for Revenue Hammad Azhar has assured the business community that withholding tax (WHT) on cash withdrawal from bank accounts will be abolished for tax filers so as to encourage ease of doing business.

Fitch Solutions warned Pakistan of larger economic distortions and greater pain in future for seeking unconventional funding sources to avert the balance of payment crisis, and little appetite for austerity and economic reforms.

Global food and agriculture producer Cargill renewed its long standing commitment to Pakistan by announcing plans to invest more than $200m in Pakistan in the next three to five years.

The government is determined to facilitate introduction of new products in the capital market, said Securities and Exchange Commission of Pakistan (SECP) Chairman Farrukh Sabzwari.



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