PSX witnesses profit taking to close below 40,000 points

Lahore - Pakistan equities witnessed profit taking during the outgoing week after crossing 40,000 points.

Benchmark KSE-100 index closed at 408 points (-1 percent WoW) lower at 39,499 points, with almost all major index heavyweights namely cements (down 0.7 percent WoW on increasing coal prices and strong price run during 2016TD, fertilisers (down 2.6 percent WoW on increasingly weak outlook), banks (down 2.0 percent WoW on continuous foreign selling) and gas utilities (down 3.1 percent WoW after strong price run up), witnessing correction at high levels.

However, the heavyweight oil & gas sector (+1.4 percent WoW) fared better than the rest during the week on the back of rising international crude oil prices.

Overall participation recorded improvement with average value traded increasing by 13 percent WoW to $124million/day as corporate result announcements picked up.

Moreover, activity mostly remained concentrated in low market cap sectors such as personal goods (+1.0 percent WoW) and  telecom (+2.0 percent WoW).

A big chunk of volumes can also be attributed to continued buying interest in K-Electric (KEL) on rumours of potential stake acquisition by Chinese investors.

Other key headlines of the week were: reduction in NFML imported urea prices to Rs1,310/bag, government fetching Rs373 billion in MTBs auction, spike of 35 percent since mid-June in international coal prices and decline of 15 percent to $64.3 million YoY recorded in July FDI numbers.

FXTM Research Analyst Lukman Otunuga commented that global stocks traded lower on Friday as the ongoing debate between Fed policymakers over future US rate hikes sparked jitters, consequently overshadowing oil’s sharp resurgence. Asian markets concluded on a depressing note after some Federal Reserve officials suggested the idea of a US rate hike in September which repelled investors from riskier assets.

European equities were punished by Asia’s bearish contagion with most major stocks drifting lower as market participants reassessed the health of the global economy.

Although Wall Street was lifted up by rebound in oil prices that provided energy companies a welcome boost, losses would be assessed if the Fed debate takes centre stage. Otunuga said that the short-term gains seen in global stocks had been undeniably impressive but go against the fundamentals which does raises questions about the sustainability of the current market rally.

Concerns over the global economy still linger in the background while uncertainty remains a persistent theme which has left most investors anxious.

Although boosts in oil prices have somewhat elevated global sentiment, it should be kept in mind that fears over excessive supply are still present.

The Central Bank’s caution is still a theme in the markets and this could weigh heavily on global confidence, consequently leaving stocks vulnerable to further losses. With the ingredients of a bear market still present, investors should remain alert as it could take an unexpected catalyst to rapidly halt the stock market rally.

According to experts, start of the week marked another milestone for local bourse as benchmark KSE-100 index closed above 40,000 level for the first time.

Banking and Exploration & Production stocks attracted the most interest where activity was led by results season. However, some correction was seen towards the end of the week. Resultantly, the index closed on the weekend at 1.0 percent, down 39,499 level.

Average daily volumes for the week witnessed 0.3 percent decline, with volumes clocking in at 230.7 million shares. On the other hand, average daily values for the week climbed by 13 percent to Rs12.9 billio/$123.6 million.

Foreigners were net sellers of $18.4 million worth of shares during the week. Chemicals sector witnessed net outflow of $10.5 million, while the cement sector witnessed net buying of $0.7 million.

During the week, Nestle Pakistan (NESTLE) announced its 2Q2016 earnings in which the company reported profit after tax of Rs3 billion (EPS Rs65.7), up 18 percent YoY.

NESTLE’s net sales improved 6 percent YoY to Rs29.6 billion while gross profit rose 24 percent YoY to Rs11.3 billion. Gross margins of the company improved by 5.6 points YoY to 38.3 percent in 2Q2016.

We attribute this to lower oil and milk powder prices, leading to lower raw material costs.

The Economic Coordination Committee (ECC) allowed the sale of imported fertiliser currently available with National Fertilizer Marketing Limited (NFML) at Rs1310/bag.

Presently local manufacturers are selling Urea at Rs1,400/bag. This decision is not likely to pose any substantial threat to major urea manufacturers such as Engro Fertilizers (EFERT) and Fauji Fertilizers (FFC).

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