PSX benchmark index records 3.4%WoW decline
Pakistan Stock Exchange (PSX) endured bearish sentiments throughout the week due to a lack of imminent triggers. The benchmark index recorded its second-highest correction of the year in percentage terms, losing 3,933 points or 3.4%WoW to close at 110,323 points on Friday, February 07, 2025. The decline was mainly driven by higher dividend-yielding sectors, including Fertilizer, E&P, and Banks, as stocks prices corrected adjusting their dividend yields in line to rising secondary yields.
Notably, in the last T-Bills auction, cutoff yields increased, taking 12-month yields to 11.59%, as investors reacted to a lower-than-expected policy rate cut and opted to wait for the IMF review.
Trade deficit widened by 18%YoY to US$2.3 billion in January 2025, driven by a 10%YoY rise in imports.
On a positive note, inflation eased to a nine-year low of 2.4%YoY in January.
The Sindh and Baluchistan assemblies passed the agriculture income tax bill during the week, complying another IMF condition ahead of the upcoming review.
President Asif Zardari’s visit to China generated positive sentiment, with discussions on CPEC Phase-II continuing to unfold.
Market participation declined, with average daily traded volume falling 13%WoW to 434 million shares, from 498 million shares in the earlier week.
On a positive note foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by US$46 million to US$11.4 billion as of January 31, 2025.
Other major news flow during the week included: 1) Pakistan and SFD sign US$1.61 billion agreements to boost economic cooperation, 2) FBR faces PKR468 billion shortfall in 7MFY25 revenue collection, 3) sales of POL rise 4%YoY in the first seven months of the current financial year, 4) Cement dispatches increased by 14%YoY in January, and 5) POL price were increased in the last fortnightly review.
Among the various sectors only REIT was a positive performer, while Refinery, Transport, OMC, E&P, and Technology sectors witnessed erosion in value.
Major selling was recorded by Mutual Funds with a net sell of US$5.5 million, barring sale of 6.0% stake of PKGS by Enso AB. Individuals absorbed most of the selling with a net buy of US$7.9 million.
Top performing scrips of the week were: SAZEW, AICL, NPL, MUGHAL, and INIL, while laggards included: ENGROH, MTL, POL, PTC, and ATLH.
According to AKD Securities, the market outlook remains positive, with the market expected to largely being driven by specific scrips and sectors, following any trigger or corporate results.
The upcoming MSCI review next week could serve as a potential catalyst for market sentiments. Over the medium term, the benchmark index is anticipated to sustain its upward momentum through CY25, 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.
During January 2025, cement offtakes increased 14%YoY to 3.9 million tons, supported by 12%YoY growth in local dispatches and 30%YoY growth in exports. The increase in local dispatches was primarily due to the low base effect from previous year, when public construction activity was halted amid electoral activities.
The slight decline in cement prices supported local construction activity. In 7MFY25, total dispatches declined 2%YoY to 26.8 million tons, as an 8%YoY drop in local dispatches outweighed the 31%YoY rise in exports. On a sequential basis, total offtakes declined by 6%YoY due to seasonal (winter) slowdowns.
South’s utilization surges amid export growth. The daily domestic sales stood at 107,000 tons during the month under review, down 2%MoM, while 8% above the FYTD average of 99,000 tons.
Industry wide capacity utilization increased to 56% as compared to 50% during the same period last year. Regionally, North utilization remained lower at 49%, while South utilization surged to 86% from 72% during the period under review, supported by robust export growth, up 31%YoY.
AKD Securities expects sector profitability to remain strong, with its coverage universe projected to post 11%YoY earnings growth in FY25.
It also expects ease in coal prices to largely offset the cost pressures. Notably, Afghan coal prices have dropped around PKR5,000 ton following the reduction in tariffs by the Afghan government.
Cement prices are under pressure due to lower utilization, particularly in the North region, where prices have declined 4%YoY to PKR1,368/ ton. Subsequently, the price delta between North and South has also reversed to negative 1%, as compared to FYTD average of positive 5.4%, which is expected to benefit South-based players.
Looking ahead, the brokerage house expects cement prices to recover as offtakes improve post-winter.
AKD Securities expects FY25 local cement offtakes to contract by 6%YoY to 36.0 million tons, due to subdued construction activity given elevated cement prices, high inflation, increased FED and royalty rates, and reduced public spending. However, with coal price stability, the brokerage house anticipates exports to rise, leading to a total demand decline up to 5%YoY in FY25.
Despite demand pressures, the brokerage house maintains a positive outlook on the sector due to the expected improvement in profitability amid gross margin expansion and ongoing monetary easing.
Its top picks include LUCK and FCCL. It favors LUCK due to improvement in core margins, increase in dividend from power segment and recovery in cyclical segments. Whereas, FCCL is preferred on market share expansion along with efficient utilization of fuel and easing interest rates.