Pakistan Stock Exchange closes almost flat
The week ended on July 19, 2024 began with the market showing bullish momentum from the outset after Pakistan and IMF reached a staff level agreement for a US$7 billion Extended Fund Facility (EFF) program, which instilled optimism amongst investors. Meanwhile the political tensions persist, as government mulls opposition party ban. Consequently, the bullish trend did not sustain throughout the week and the market faced volatility in the last session. Overall the benchmark KSE-100 index closed with a gain of 173 points or 0.22%WoW to close at 80,117 points on Friday.
Current Account Deficit (CAD) for FY24 was reported at US$681 million, down 79%YoY.
The issue of the IPPs agreements came into the limelight in the background of rising electricity prices across the country, hefty capacity payments, and uncontrolled circular debt, prompting government to order audits of several IPPs.
Concurrently, MS and HSD fuel prices were increased in the last fortnightly review.
On the external front, Textile and food export for FY24 were reported at US$16.7 billion and US$7.4 billion, up 1% and 47%YoY.
Petroleum imports dropped by 1%YoY to US$16.9 billion in FY24.
Average daily trading volume was up 5.6%WoW to 463.55 million shares as compared to 438.83 million shares a week ago.
Foreign exchange reserves by State Bank of Pakistan (SBP) increased by US$19 million on a weekly basis to US$9.42 billion as on July 12, 2024.
On the currency front, PKR appreciated by 0.1%WoW to close at 278.13/ US$ on Friday.
Other major news flow during the week included: 1) Cement dealers announced strike to protest high taxes, 2) Refineries held back US$5 billion investments over tax exemption dispute, 3) Moody’s said IMF deal to improve funding prospects for Pakistan, 4) IMF announced Pakistan economy likely to grow at 3.5% in FY25 and 5) GoP to consult UAE on PARCO.
Close-end Mutual Fund, Automobile parts & Accessories, Property and Vanaspati & Allied Industries were amongst the top performing sectors, while, Tobacco, Jute, Textile Weaving and Power Generation & Distribution were amongst the worst performers.
Major net selling was recorded by Insurance companies with a net sell of US$7.66 million. Foreigners absorbed most of the selling with a net buy of US$9.33 million.
Top performing scrips of the week were: AVN, THALL, JVDC, SNGP and EFUG, while laggards included: PKGP, PAKT, GADT, NBP and INIL.
According to AKD Securities, the positive sentiments are anticipated to persist due to the market’s attractive valuations, staff level agreement with IMF and constant foreign inflow into equities.
However, escalating political tensions could dent investors’ confidence. Meanwhile, market participants’ focus would remain on upcoming corporate results, inflation figures and the next Monetary Policy Committee.
Pakistan cement industry has posted modest growth on higher exports. Cement dispatches reached 45.29 million tons in FY24, an increase of 2%YoY. The growth was primarily driven by higher export volumes, while domestic sales fell to a seven-year low of 33.2 million tons, down by 5%YoY.
The decline in the local sales was mainly attributed to a slowdown in construction activities due to elevated construction costs, higher inflation, and record interest rates. Meanwhile, exports witnessed a 56% annual growth to 7.11 million tons. South region played a major role posting 62%YoY surge, with the drop in the international coal prices enhanced exports viability.
In Jun 2024, local sales declined by 12%YoY to 3.1 million tons, due to less working days amid Eid holidays. Similarly, exports also dropped by 18%YoY, primarily due to lower clinker sales from the South.
Federal budget FY25 introduced an increase in FED on cement, doubling it from PKR100/bag to PKR200/bag. However, the sector’s pricing power allowed it to pass on this increase to customers, resulting in cement prices by up to PKR150/bag to over PKR1,400/bag.
Furthermore, Federal PSDP allocation for FY25 has been increased by 75%YoY to PKR1.15 trillion as compared to FY24 revised allocation of PKR0.7 trillion. Historically, PSDP utilization has remained lower than total allocation, and likewise expected for current year as well. Nevertheless, the increase (even with low utilization), is expected to support the current level of demand from public projects at a minimum.
On the downside, increased taxes on income (personal, AoP, and salaried individuals), along with taxes on developers, are expected to negatively impact local cement demand.
OGRA recently has announced another hike in the gas prices for the captive usage to PKR3,000/ mmbtu (effective July 01, 2024), from PKR2,750/ mmbtu previously. This increase is expected to significantly impact CHCC and LUCK, as they source 50% and 14% of their power from gas, respectively. The aforementioned price hike will have a negative annual impact of 4.4% on CHCC and 1.5% on LUCK’s earnings. To note, captive gas prices have increased by 2.5xYoY, rising from PKR1,200/mmbtu in Jun 2023. The said substantial increase has eroded the competitive advantage of these companies. Despite this, power generated from captive gas at the revised rates still remains cheaper than grid rates, calculated at PKR29.5/kWh.
According to an AKD Securities report, challenges persist for automobile industry of Pakistan as passenger car sales drop to lowest in 15 Years. During FY24, the auto sector struggled with sluggish demand recovery as total industry sales dipped by 6% to 151,983 units. The industry saw muted sales throughout the year. Total industry sales remained subdued despite a low base effect caused by supply chain challenges and plant shutdowns from the previous year, resulting in a weak recovery. INDU reported total sales of 31,104 units, marking a 33%YoY decrease. However, SAZEW 4-wheeler sales reported at 5,374 units in FY24. Total industry sales reached 17,717 units in June 2024, marking a 24% increase compared to the previous month. Major improvement in volumes were witnessed by Passenger cars. Auto sales saw a monthly increase, yet the sector is anticipated to require additional time for complete recovery.