Market Review
The period under review started off on a dull note and remained negative throughout the week amid lack of triggers. The sentiments were further dented as Fitch Rating agency showed reservations to the worsening current account and fiscal deficit condition of the country where the index closed at 40,239pts, down by 4.2%WoW. The activity during the week remained lackluster as evident from decline in ADT and ADTV by 33.2%WoW and 37.0%WoW, respectively. Foreign investors remained net sellers, exhibiting a net outflow of USD10.9mn.
During the week, NEPRA rejected demand of K-Electric to increase the tariff by PKR3.0 per unit but instead gave an allowance of five-paisa per unit for indexation against recent exchange loss. APCMA released the latest numbers on cement off-takes that increased by 9.3%YoY, clocking in at 2.98mn tons for Jun’18 taking the cumulative FY18 volumes to 45.9mn tons, up by 13.8%YoY. Moreover, Bestway cement began supplying the clinker from its new production unit which has an output capacity of 6K tons per day. Additionally, HCAR jacked up the prices of its variants within the band of 30k to 100k for different products accredited to PKR devaluation. Furthermore, FBR re-imposed import duty of 2% on cotton to benefit local growers.
On the macro front, central bank’s foreign exchange reserves increased to USD9.8bn, up by USD126mn accredited to inflow of USD1bn from China’s policy bank. Also, consumer inflation spiked to nearly four year high of 5.2%YoY in June as food and fuel pri ces tracked up during the month. Furthermore, as per sources, more than PKR100bn is collected under the amnesty scheme and more money is expec ted to come in the national kitty under the head of investment bonds as the scheme has been extended till July 31 , 2018.
Outlook
Decision on Avenfield case was finally announced today where the ex-prime minister was indicted. However, in the immediate aftermath of the decision announcement, the market participants reacted positively with index gaining over 45 points and closing in the green. However, we are of the view that the euphoria is unlikely to sustain going forward and market is expected to remain volatile in the weeks leading up to the general election.
News This Week
Economic highlights & Data points
SBP’s reserves up by USD126mn (The News): This increase was against the trend as the reserves had been falling since May 2017. In the outgoing week, SBP reserves dipped below the USD10bn -mark to reach USD9.8bn. The holdings of the commercial banks continued to increase to touch their peak of USD6.6bn. The country’s overall reserves stood at USD16.4bn on June 29.
Consumer inflation hits four-year high of 5.2% in June (The News): Annual consumer inflation spiked to nearly four years high of 5.2% in June as food and fuel prices tracked up during the month, official data showed on Wednesday. On month-on-month basis, consumer price inflation increased 0.6% in June as compared to an increase of 0.5% in the previous month and decrease of 0.4% in June 2017.
Huge revenue shortfall: Fiscal deficit exceeds 6.1% in second week of June (BR): If we can contain the fiscal deficit for fiscal year 2017-18 at 7% of GDP it will be an achievement, said sources in Finance Ministry on condition of anonymity. A huge revenue shortfall due to inability of provincial governments to provide projected budget surplus and revenue impact of the decisions taken by Abbasi-led administration pushed the deficit to over 6.1% in the second week of June 2018.
Fitch warns of growing risks to Pakistan’s economy (Dawn): Time is running out for Pakistan’s governmental authorities to address a sharply deteriorating economic situation, Fitch Ratings, one of the world’s leading credit rating agencies, warned on Tuesday . At the heart of the deterioration are the plummeting foreign exchange reserves and widening current acc ount deficit that are adding to the country’s external financing risks.
China lends USD1bn to Pakistan to boost FX reserves (The News): China has lent Pakistan USD1bn to boost the country’s plummeting foreign currency reserves, two sources in Pakistan’s finance ministry told Reuters.
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Sector and Corporate highlights
Setback for K-Electric as Nepra refuses tariff hike (Dawn): The regulator set Multi-Year Tariff (MYT) for KE at PKR12.8 per unit instead of PKR12.8 it had allowed in October last year. The term of the MYT expires on June 30, 2023 starting July 1, 2016.
Duty exemption on cotton import withdrawn (Dawn): A notification SRO847 issued on Thursday stated the exemption facility will be ineffective from July 15, 2018. Since Jan 8, the government has exempted 5% sales tax and 4% customs duty on import of cotton through a notification SRO48 of 2018.
Cement sales up 9.3% to 2.98mn tons in June (The News): Cement sales rose 9.3%YoY to 2.98mn tons in June, but the number r emained below the monthly dispatches of the previous 11 months, industry data showed on Wednesday. All Pakistan Cement Manufacturers Association (APCMA) data showed that local sales from north-based factories rose 13.8%YoY to 2.16mn tons in June, while their exports fell to 0.18mn tons from 0.22mn.
Honda jacks up car prices for third time this year: (The News): Honda Atlas Cars on Monday jacked up the prices of its vehicles from PKR30K to PKR100K, citing rupee devaluation and expensive steel. This is the third time the Japanese carmaker has increased prices since the beginning of the year 2018.
Bestway Cement starts clinker supply from new unit (The News): Bestway Cement has begun supplying clinker from its new production unit that has an output capacity of 6,000 tons/day. Bestway started production from its new plant in May last year. Farooqia’s plant had around 1,700/day capacity plant when Bestway decided to bid for 85.3% of equity of Mustehkam Cement Limited.
| Stock Market Synopsis | |||
|---|---|---|---|
| Last week | This Week | %Change | |
| Mkt. Cap (US $ bn) | 71.0 | 68.7 | -3.3% |
| Avg. Dly T/O (mn. shares) | 184.1 | 123.1 | -33.2% |
| Avg. Dly T/O (US$ mn.) | 62.8 | 39.5 | -37.0% |
| No. of Trading Sessions | 5.0 | 5.0 | 0.0 |
| KSE 100 Index | 41,997.9 | 40,238.8 | -4.2% |
| KSE ALL Share Index | 30,479.8 | 29,495.3 | -3.2% |