PSX records highest intraday level of 80,000
At the Pakistan Stock Exchange (PSX) trading was reduced to two days due to Eid-ul-Azha holidays. On Friday, June 21, 2024 market witnessed fluctuation as the index momentarily crossed the 80,000 level during intraday trade. On Thursday the benchmark KSE-100 index had closed at an all-time high of almost 78,800 points. On Friday, the market closed at 78,810.49 — maintaining its record high level with a meager rise of nine points.
The week before that the market lost ground in the first two days amidst rumours about potential increases in the Capital Gains Tax (CGT) due to which the KSE-100 index stayed bearish and the index hit 72,589 level before showing signs of recovery on Wednesday. Market recovered swiftly after the announcement of the Federal Budget for FY25. The taxation measures introduced in the budget weren’t as adverse as originally anticipated. On Thursday the index gained 3,410 points, most in a single day and closed at 76,706 level on Friday reaching the highest ever closing, with a gain of 2,952 points, up 4%WoW.
Despite initial jitters over proposed tax changes, the market recovered, reflecting investors’ confidence amidst pre-budget uncertainty. The week also saw the State Bank of Pakistan (SBP) announcing a first token rate-cut of 150 bps, adding further to the positivity.
As inflation outlook eases, the cut-off yields in the latest T-Bills auction dropped.
Overall, average trading volumes decreased by 3.8%WoW to 409.6 million shares as compared to 423.3 million shares a week ago.
On the currency front, PPR depreciated by 0.11%WoW to close at 278.51/US$.
Other major news of the week included: 1) RPK9 billion approved for clearing OMCs’ PDCs, 2) ECC allowed conditional export of 0.15 million tons sugar, 3) In FY25 Budget government announced to raise tax to GDP ratio to 13%, 3) government also announced to float US$1 billion bonds and obtain US$4 billion loans from the foreign banks, 4) FY25 Budget aimed raising PKR3.8 trillion new taxes and , 5) World Bank projected Pakistan’s GDP growth at 2.3%.
According to AKD Securities Commercial Banks, Pharmaceuticals, Oil & Gas Exploration Companies, Oil & Gas marketing companies and Paper & Board were amongst the top performing sectors, while laggards included Textile composite, Woollen, Leasing companies, Food & Personal Care Products and Textile Spinning.
Major net selling was recorded by Individuals with a net sell of US$8.9 million. Mutual funds absorbed most of the selling with a net buy of US$11.1 million.
Top performing scrips of the week were: BAFL, MCB, NCPL, UBL and KOHC, while laggards included: ILP, PTC, YOUW, COLG and 5) PGLC.
The post-budget market has attained some certainty, particularly in sectors that benefitted from budgetary measures. With the start of monetary easing, optimism is expected to rise, particularly in cyclical sectors.
Furthermore, the approval of the budget paves the way for the upcoming IMF program, which will likely become a significant market catalyst going forward.
The State Bank of Pakistan (SBP) decided to start the monetary easing cycle with the first rate cut in almost four years. The decision was based on significant reduction in inflationary pressures supported by fiscal consolidation.
The SBP’s decision to begin monetary easing appears appropriate given the expectations of ongoing fiscal consolidation, stable PKR parity from an improved current account position, and a gradual recovery in the industrial sector.
The SBP is likely to remain cautious in opting for aggressive monetary easing; thus, analysts expect a further monetary easing of 200 bps by the end of this year.
Commencement of monetary easing is likely to be positive across the board and helps to build investor confidence.
Top plays include E&Ps (OGDC, PPL and MARI), Banks (MCB, UBL), Fertilizers (FFC), Power (HUBC), Cement (LUCK, MLCF and FCCL), Autos (INDU), Steel (MUGHAL) and Textile (ILP).
Auto sales for May were reported at 10,949 units, improving 4%MoM but doubling YoY. The big YoY jump is mainly due to a low base effect as last year there were import restrictions in place. However, on a cumulative 11MFY24 basis, sales were down 25% YoY.
INDU sales remained flat on a MoM basis. However, there was a shift in the product mix with the Fortuner & Revo segment witnessing a 41% MoM jump; while the Corolla, Yaris and Corolla Cross fell 9%, potentially because of the upcoming Yaris facelift and sharp price cuts by the competitor’s Kia Stonic. INDU’s market share declined 0.9%MoM to 18.7%.
PSMC remained the market leader with a 55% market share. However, sales were flat MoM. Stronger sales from Swift, Ravi and Bolan offset weaker sales from Alto, Wagon R and Cultus. Rapid increase in Swift sales may be explained by the 7% price cut at the start of the month.
HCAR witnessed the biggest improvement in sales, posting an 18%MoM increase, with both the SUV and sedan segments contributing to the improved figure. However, sales picked up from a very low base, as HCAR sales were quite weak in April (down 50%MoM).
The tractor industry cumulative sales were flat MoM at 3,078 units. AGTL sales contracted sharply by 30%MoM which was offset by MTL’s 15%MoM growth. This helped MTL to increase its market share to 76% from an average 67% over 10MFY24.
Sequential industry sales showed only minor improvement, largely due to the Eid holidays in April, which resulted in more working days in May. Analysts believe auto sales have hit the bottom in FY24, with FY25 expected to see improvement due to falling interest rates offsetting any potential new taxes in FY25 budget.