PSX benchmark index up 5.6%wow
At Pakistan Stock Exchange (PSX) positive momentum continued, with the benchmark KSE-100 index posting a weekly gain of 6,236 points or 5.6%WoW and closing at 117,587 points on Friday, January 03, 2025. The rally was led by the Banks, Fertilizers, and Investment & Securities cos.
The removal of ADR tax and implementation of additional taxation resolved uncertainty over the taxation regime, fostered optimism as banks would shift focus toward deposit growth.
Higher dividend expectations from fertilizer stocks and ongoing restructuring further bolstered investors’ confidence.
On the macro front, inflation eased to a 7-year low of 4.1%, taking real positive interest rates to 890bps, implying further potential rate cut in the upcoming Monetary Policy Committee (MPC) meeting. Statements from the Finance Ministry and the Prime Minister hinting at interest rates dropping to single digits further fuel this optimism.
A 14%YoY increase in imports widened the trade deficit to US$2.4 billion at end December 2024. Meanwhile, 1QFY25 GDP growth stood at 0.9%, driven by Agriculture and Services sector growth of 1.2% and 1.4%, respectively, while the Industrial sector contracted by 1.0%.
Prime Minister launched home-grown Economic Revival Plan during the week, targeting GDP growth of 6% by FY28, boosting exports to US$60 billion, and taking immediate measures to reduce electricity cost.
Market participation also improved significantly, with average daily traded volume rising by 32%WoW to 1.04 billion shares from 0.79 billion shares a week ago.
Foreign Exchange Reserves held by State Bank of Pakistan (SBP) declined by US$143 million WoW to US$11.7 billion as of December 27, 2024.
Other major news flow during the week included: 1) FBR falls PKR386 billion short of revenue target in first half of the current financial year, 2) Sale of 15% stake in Reko Diq to be finalized soon, 3) OMC volumes for the month of December were up 3%YoY while 1HFY25 volumes were up 4%YoY, 4) Local cement sales decline 4.8%YoY in December, and 5) IMF refuses reduced sales tax rates for refinery sector.
Engineering, Textile Spinning and Banks were amongst the top performers, while Sugar & Allied and Tobacco sectors were laggards.
Major selling was recorded by Companies and Other organizations with a net sell of US$11.3million and US$9.1 million, respectively. Mutual Fund absorbed most of the selling with a net buy of US$16.9 million.
Top performing scrips of the week were: i) PGLC, PSX, EFERT, DAWH, and MTL, while laggards included: TRG, FCCL, AICL, INDU, and PABC.
Market is expected to maintain its positive trajectory, driven by an anticipated shift of funds from fixed income securities to equities amid falling fixed income yields.
With easing inflation, the upcoming MPC meeting will remain a key focus.
Over the medium term, the KSE-100 is anticipated to sustain its upward momentum through CY25.
Pakistan’s leading brokerage house, AKD Securities forecasts KSE-100 Index to cross 165,200 points by December 2025, primarily driven by the strong profitability of fertilizer companies, higher sustainable ROEs of banks and improving cash flows of E&Ps and OMCs, benefitting from falling interest rates.
December 2024 sales of OMCs amounted to 1.28 million tons, up 3%YoY, however declined 19%MoM. On a positive note, recovering economic activity and stable gasoline prices, driven by declining global crude prices and a steady exchange rate, have bolstered demand.
Consequently, 1HFY25 recorded a 4%YoY growth across the board, sharply contrasting the declines observed during 1HFY24 and 1HFY23. However, on a sequential basis, volumes dipped by 19% during December, as the winter season fully gripped the country. Season vacations alongside impact of smog in major northern cities significantly restricted travel, contributing to the overall decline.
Specifically, HSD volumes rose by 12%YoY during December, possibly led by contraction in smuggled diesel penetration. However, normalization of demand following the conclusion of the Rabi sowing season has reverted regular consumption level to 18,500 tons per day during the month.
HOBC sales saw a sharp uptick of 252%YoY, driven by a narrowing price differential between regular and premium fuel.
Kerosene sales rose by 66%YoY as households increasingly turned to alternative fuels due to declining natural gas pressure during the winter season.
Overall, industry offtakes during the 1HFY25 rose to 8.0 million tons (up 4%YoY), with retail volumes (MS, HSD and HOBC) totaling 7.3 million tons (up 8%YoY).
Among the listed companies, SHEL volumes remained upbeat among the top five players, with sales increasing by 5%YoY during December, outperforming the industry’s growth of 3%YoY during the same period.
However, PSO and APL, continue to see their market presence erode amid growing competition from smaller retail fuel players, with PSO and APL shares declining to 45% and 8.7% in December as compared to 49.4% and 9.9% in FY24.
Overall, market shares of PSO (46%) was followed by APL (8.7%), SHEL (7.2%) and CNERGY (2.9%) during 1HFY25.
PDL collection continues to fall short, despite OMC volumes sales modestly up 4%YoY. During 1HFY25 authorities have collected PKR558 billion under the Petroleum Development Levy (PDL) head with an annual target of PKR1.28 trillion for the full year. At the rate of growth for the sector volumes of 3%YoY, estimated PDL collection is projected to end the full year at PKR1.08 trillion, short by PKR202 billion for the non-tax revenue head. However, immediately raising PDL to PKR70/liter, may reduce the shortfall to PKR114 billion for the year.
Total volumes have risen by 4%YoY during 1HFY25, with the recovery over the previous year led through higher retail fuel sales, which were up 8%YoY. Given this, analysts maintain growth projection of 3%YoY for sector sales during FY25, led by lower fuel prices alongside recovery in commercial/ industrial activity during the year.
They have a ‘BUY’ call for PSO and APL. The reasons for liking include anticipated revision in OMC margins during 2HFY25 alongside modest volumetric recovery, while resolution of gas circular debt is to favorably impact the state-owned PSO.