LAHORE - Excitement returned to the market with elimination of sentimental concerns during the week, putting an end to continued dull activity which had plagued the market from Sept-15. Off late, KSE has continued to defy improvement in macros (IMF tranche, persistently low CPI readings, 50bps DR cut etc.) amidst rumors of NAB and SECP investigations against some brokers that later reverted with SECP’s clarification on the subject. Average trading volumes however remained thin to 175 million during the week (-1.7 percent WoW). Foreign investors also continue to remain net sellers with net outflow during the week clocking in at US$19.3 million. During the week, major activity was observed in (1) Cement sector, as value buyers jumped in after steep correction, (2) Steel sector as successful IPO of Amreli Steels at strike price of Rs51/share and oversubscription of 1.5x re-rated sector’s multiple, (3) Pharma sector in anticipation of strong quarterly results and (4) Oil & Gas sector with reversal in international crude oil prices (Crude Oil up ~10 percent WoW to US$50/bbl). Other important highlights of the week are (1) FX reserves hitting all time high of US$20 billion, (2) approval of Rs2.60/unit cut in electricity tariff fro Nov 2015, (3) Finalization of provisional price of US$8.6/mmbtu for RLNG by OGRA and (4) 15-20bps decline in PIBs cut-off yield.

According stock market analyst Faizan Ahmed, tracking the recovery in Asian markets, KSE-100 index increased by 3 percent weekly. Sharp recovery was seen in international oil prices during the week as Arab Light/WTI Crude was up 12 percent/9 percent WoW. Resultantly, Oil & Gas sector at KSE index marched up 8 percent WoW. Average daily volumes were down by 2 percent to 175 million shares while traded value increased by 20 percent to Rs9.6 billion/US$91.6 million.

During the outgoing week, mutual funds and individuals were net buyers of US$14.2 million and US$4.9 million, respectively, while foreigners were net sellers of US$20 million, taking the total YTD 2015 foreigners’ net selling to US$195.8 million.

Oil & Gas, construction & material and Commercial banks were major gainers during the week, increasing by 8 percent, 4 percent and 2 percent, respectively. On the other hand, Tobacco and Life Insurance were major losers, down 4 percent and 3 percent, respectively.

Muttahida Qaumi Movement (MQM), the largest political party in Karachi, agreed to take back their resignations from Parliament and Sindh Assembly following Govt.’s decision to form a grievance resolution committee.

In its 8th review observations the International Monetary Fund (IMF) has stated that is would like to see a quick progress on Pakistan’s central bank independence to set monetary policy. It further stated that Govt. is likely to issue expression of interest document for privatization of core aviation unit before 2015 end, with completion by Jun 30, 2016. Moreover, Govt.’s sale of Pakistan Steel Mills is likely by Mar 2016 end.

As per a newspaper report, local urea manufacturers in a meeting with Govt. officials agreed to reduce prices after Govt. committed to give them concessions in gas prices. As per our analyst, key local producers are yet to reduce prices. It is likely that if gas prices are reduced then they might also revert back their prices.

Pakistan Petroleum Limited (PPL), through a KSE notice, has disclosed the discovery of gas from the Latif South-1 exploration well. PPL has a 33.34 percent stake in the joint venture of the Latif exploration license. Our analysts predict a positive impact of Rs0.18 on PPL’s EPS.

Book building of Amreli Steels Limited was completed and a total of 138.8 million shares were received against the offer of 55.5 million shares, at a strike price of Rs51/share.

According to experts, reduction in urea prices are on the cards since the difference between landed cost of imported urea and locally manufactured urea has reduced substantially from historical average discount of 30-35 percent. Currently, international urea prices are hovering around $265/ton (Landed equivalent Rs1,900-2,000 bag) versus local urea price of Rs1,969/bag.

Moreover, future contracts prices are close to $250/ton. This scenario further supports reduction in local urea prices. We also believe that prices of international urea will remain on lower side considering soft commodity prices globally.