LAHORE - Spells of bearish sentiment continued at the local bourse this week as the KSE 100-index declined by 2.1 percent WoW to 40,855 points.

Overall volumes waned as well with average daily turnover declining to 139m shares (-22 percent WoW), while traded value declined to $39m (-36 percent WoW). Foreign investors remained net sellers during the week ($9.5m), concentrated in the banking ($5.6m) and cement ($2.9m) sectors. Experts believe investors remained cautious during the week due to demanding economic decisions emerging from the new government. These included reported plans to increase industrial gas prices by 26 percent (average across-the-board increase of 46 percent), followed by Economic Advisory Council's (EAC) recommendations of withdrawing subsidies. This was in addition to Economic Coordination Committee's (ECC) approval of Rs2/unit hike in electricity prices. Where the price hike is anticipated to partially ease the gas utilities' ongoing cash flow constraints, investor sentiments in Sui Northern Gas Pipeline (SNGP, -2.2 percent WoW) and Sui Southern Gas Pipeline (SSGC, -0.3 percent WoW) remained negative.

On the other hand, sectors such as fertilizers (-2.5 percent WoW) and glass & ceramics (-5.0 percent WoW) felt the heat on account of expected pressure on profitability with increase in fuel costs. In addition to higher fuel costs, weak cement dispatches for Aug-2018 (-8 percent YoY) added to the blow on the cement sector (-5.0 percent WoW). Refineries (-7.3 percent WoW) also lost value during the week on news of Senate panel directing to discontinue deemed duties in petroleum prices.

Experts said that stock market remained under pressure during the week as lack of clarity on economic issue due to delays in key economic decisions turned market sentiment negative. During the week, market shed 883 points to fall below the 41K level, erasing most of the gains made in the period post general elections 2018. To recall, this is the first time market has closed below 41K since elections.

During the week, Prime Minister Imran Khan approved increase in average gas prices by average 46 percent (pending ECC’s decision) which is likely to hurt select sectors including fertilizer and cement. Simultaneously, downward trend in international oil prices kept oil & gas exploration companies in the red zone. Resultantly, these sectors cumulatively chipped away 408 points from the index during the week.

Foreigners sold $9.9m worth of shares during the week vs net selling of $10m last week. On local front, insurance companies and individuals were net buyers amounting to $8.6m and $6.2m, respectively.

During the week, National Foods (NATF) announced its 4QFY18 result posting consolidated EPS of Rs4.37 up 100 percent YoY vs EPS of Rs2.19 in the similar quarter last year. Sales improved by 13 percent YoY, while distribution cost declined by 18 percent YoY. Earnings were considerably up despite 1) increase in administrative expenses by 75 percent YoY, 2) higher financial charges by 37 percent YoY, 3) decline in gross margins by 1ppts YoY to 30 percent and 4) lower other income by 65 percent YoY. NATF also announced a cash dividend of Rs3.75 per share along with a bonus of 20 percent.

Engro Polymer and Chemicals (EPCL) posted its material information on PSX disclosing that the company has decided to enter Hydrogen Per Oxide business through a Greenfield manufacturing facility with a CAPEX of US$23mn, funded through internal cash generation.

The EAC has reportedly recommended to the government to take ''tough economic decisions'' to deal with the economic challenges irrespective of political cost and withdraw subsidies as well as tax relief to higher income slabs. The liquid foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased by $342m to $9.885b during the week ended August 31, 2018.

The central bank will auction Rs5.15tr worth of Market Treasury Bills (MTBs and Pakistan Investment Bonds (PIBs) in Sept-Nov 2018 to help the government finance the budget deficit.