PSX Witnessed a dull week amid uncertainties regarding IMF Program
Pakistan Stock Exchange (PSX) witnessed a dull week ending on July 07, 2022 on account of uncertainties regarding IMF program, expectation of further monetary tightening and political turmoil. The benchmark index declined 286 points or 0.69% to close at 41,344 points.
During the week, SPI print witnessed an uptick of 363% due to higher food and energy prices. Country’s trade deficit for the year was reported at US$48.25, up by 55%.
Oil prices witnessed significant decline during the period and fell by 11.5%, due to fears of global recession. Similarly, commodities also witnessed similar fate, due to concerns over demand slowdown.
The market participation remained very dull where the average daily turnover decreased 54.6%WoW to 90.2 million shares.
Other major news flows during the week were: 1) IMF insisting on including anti-corruption mechanism in prior actions, 2) foreign exchange reserves held by SBP decreasing by US$493 million to US$10.3 billion, 3) RDA inflows hitting historic high of US$4.6 billion, 4) Banks having Rs500 billion asset size requiring implementation of IFRS 9 by January 2023, 5) crude oil prices sliding to 12-week low on fears of global recession and 6) SBP deciding to increase policy rate by 125bps to 15%.
Amongst main board scrips, close-end mutual fund, Leasing companies and REITs were amongst the top performers, up 7.8%/2.4%/1.5%WoW respectively. As against this, Vanaspati & Allied industries were amongst the worst performers with a decline of 8.1%WoW for the week.
Major net selling was recorded by Mutual funds (US$2.1 million), followed Insurance (US$1.57 million). Individuals absorbed most of the selling with net buy of US$3.17 million.
Stock wise, top performers included: HGFA, SNGP, SCBPL, LOTCHEM and OGDC, while laggards were: POML, AGP, ATRL, DGKC and YOUW.
Market activity is expected to remain lackluster in the coming week as investor seeks more clarity on IMF front. Increase in policy rate by 125bps is likely to negatively impact the market, as investor will move towards risk free asset class. The recent decline in commodity prices is a positive development for country’s external account. Lower oil price can help the GoP to collect taxes and levies without putting more burden on consumers.
Pakistan State Oil (PSO) held its analyst briefing on June 28, 2022 to discuss its financial performance during 9MFY22. PSO has reported profit after tax of PKR32.5 billion (EPS: PKR69.4) for 3QFY22, taking 9MFY22 net profit to PKR64.7 billion (EPS: PKR138), up 255%YoY from PKR18.2 billion for 9MFY21 (EPS: PKR38.8). The Company announced no dividends during 9MFY22.
In an astonishing move, palm oil prices have crashed to 9-month low and extended their longest losing streak to 10 days since March 2022 to US$1,065/ton, down 45% from its peak in March 2022. This sharp decline is largely attributable to surging exports from Indonesia where the Indonesian government increased the palm oil exports quota. Furthermore, an increase in global supply amid improved weather conditions and no expected drought in Indonesia and Malaysia should result in stronger exports beginning FY23. Exacerbated further by diminishing demand from key importers like India and China, palm oil prices are likely to carry their downward trajectory and in the short term might possibly hover around US$650-700/ton while in the medium term could settle around the last two-year average of US$800-850/ton.
Local cooking oil prices have reached an all-time high of PKR580, up 20%MoM and 90%YoY in June 2022. Pakistan is the third-largest palm oil importer with total imports of 2.7 million tons amounting to US$3.4 billion in 11MFY22, up a staggering 42.1%YoY as compared to last 4-year average of US$2.2 billion. Going forward, if the prices are to sustain at the current levels of US$1,065/ton or at the last two-year average of US$850/ton, the import bill is likely to reduce by US$515 million or US$1.1 billion, respectively, given volumes at 11MFY22 levels.
Local cement sales had a surprisingly stronger month given the current fragile macro environment, increasing by 7%YoY for June 2022 as seasonal demand picked up amid start of summer season where private sector demand led the way after two unexpected slow months. Overall, cement dispatches for FY22 were reported at 52.9 million tons decreasing by 8%YoY. Local dispatches declined by 1%YoY to 47.6 million tons largely due to slow 2HFY22 where change of regime and political unrest in the country caused the cement demand to suppress. Exports were reported at 5.25 million tons for the year, decreasing by 43.5%YoY. Richards Bay coal prices have reached an all-time high of US$460/ton during FY22, and averaged at US$327/ton in June 2022 as compared to US$320/ton in May 2022. On YTD basis, coal prices witnessed an increase of 191/149% to US$213/ton and US$276/ton in FYTD and CYTD, respectively. High coal prices coupled with PKR depreciation and rising fuel costs have kept the cement sector under pressure. However, once the clarity emerges over the IMF program and coal prices started to ease off, the cement sector is expected to lead the rally.
OMC sales were reported at 1.93 million tons for June 2022, down 11%MoM, while remaining stagnant on a YoY basis. This took total industry volumes for the fiscal year to 22.6 million tons, up 16%YoY. Majority of this YoY rise was led by increases in FO and HSD sales, up 35% and 15% respectively, as power generation from the two fuel sources remained strong during the previous two quarters. PSO/APL/SHEL/GOP delivered throughput levels of 1.03 million/201,000/152,000/88,000, during the month. This took their total market shares to end the fiscal year at 47%/8.5%/7%/6.7%, respectively. Company wise, CNERGY and HASCOL showed the most promised recording their total throughput change by 149%/42% on a MoM basis, taking total monthly sales to 36,000 and 21,000 respectively. Overall, industry retail volumes (MS and HSD) shrunk noticeably by 12%/16% MoM and 10%/8%YoY during the period. Moving forward, with overall competitive landscape improving and phasing out of furnace oil, retail fuels will continue to be the mainstay of the sector while competition from private players also intensifies through increased storage capacities and retail expansions.