LAHORE - The Karachi Stock Exchange (KSE) continues to trend upwards, as the benchmark KSE-100 closed 4.6 per cent WoW higher at its record-high of 35,456. Investors’ optimism during the week was driven on (1) IMF clearing US$506mn tranche for Pakistan, (2) CPI inflation clocking in much lower-than-expected at 3.16 per cent YoY and (3) government’s failure to announce increase in gas tariffs from July 1, 2015. Cement sector yet again remained in the limelight, with LUCK, CHCC and PIOC closing 9.9 per cent WoW, 8.7 per cent WoW and 10 per cent WoW higher respectively. Average trading volumes clocked in at 356mn shares/day (-0.5 per cent WoW), while foreigners returned net sellers worth US$1.6mn. Other key highlights of the week were: (1) Signing of Framework for Asian Infrastructure Investment Bank (AIIB), (2) Government releasing Rs437bn in FY15 under PSDP against the approved Rs525bn, (3) FBR provisionally collecting Rs2.58trn vs. its revised target of Rs2.61trn, (4) Government taking a hit of Rs2.5bn for keeping petroleum products prices intact, (5) China’s firm offering US$50bn for hydro-electric projects and (6) Crescent Steel (CSAP) getting Rs2.5bn contract from SNGP.
Experts said that overcoming the tedious trading activity and local bourse performance in May 2015, KSE-100 index started to march ahead in June 2015 as FY16 budget remained largely on positive node for equity investors while potential reclassification of MSCI Pakistan Index to Emerging Markets (EM) in 2016 and country rating upgrade by one notch to B3 by Moody’s strengthened the sentiments. During the month, the benchmark index (KSE-100) recouped with 1,342 points (+4.1 per cent in PKR, +4.3 per cent in USD). Textile, Construction and Chemical sectors remained in limelight during Jun’15 along with the pharmaceuticals and gas utilities. On the flip side, Oil & Gas, banks and tobacco companies were the main laggards.
Cumulatively in FY15, KSE-100 index has posted a return of 16.0 per cent vs. 41.2 per cent in FY14. The growth momentum cooled off in FY15 despite of monetary easing, stronger external accounts, surging forex reserves, sovereign rating upgrade and potential reclassification of Pakistan to EM. We attribute lower & dwindling crude oil prices, falling banking spreads and tough textile fundamentals as the primary culprits to the weak performance. On the other hand, Chemical, Construction, Food, Automobile and Electricity stocks supported the index.
Experts remain sanguine on Pakistan equity market on the back of improving economic fundamentals, controlled political climate, improving security situation and strong corporate profitability. After dodging crisis like situation and clinging back to the recovery path, Pakistan would now step into super normal growth phase, we believe. In addition, they expect 10.4 per cent profitability growth for FY16, which would further jump to 12 per cent in subsequent year. Furthermore, we assert that the progressive development in IMF program along with necessary economic reforms and aforesaid characteristics are likely to strengthen the case for re-rating of price multiples at KSE.
According to latest data, total cement dispatches grew by 3.5 per cent YoY to 35.4mn tons which was in line with our expectations. On MoM basis, total sales grew by 9 per cent to 3.3mn tons in Jun 2015. Local sales posted stellar growth of 8 per cent YoY in FY15 to reach 28.3mn tons, better than the avg. growth rate of 5 per cent seen in last 5 years. This was due to 1) increase in private sector expenditure on construction & housing, 2) better security situation, 3) improving macros and 4) higher Govt. infrastructure spending in FY15. On MoM basis, local sales grew by 12 per cent to record 2.8mn tons. Export dispatches in FY15 were down 12 per cent YoY to clock-in at 7.2mn tons. This decline was attributed to falling export to Afghanistan owing to competition from low price Iranian cement and political instability in the country. On MoM basis, export sales declined by 4 per cent to 0.54mn tons.