Lahore - The Pakistan stock market retaining last week bullish sentiments closed positive, registering a rise of 0.7 percent on weekly basis, mainly due to return of foreign investors . According to market experts, the FIPI recorded at $4.1 million during the week, indicating the end of a painfully long selling phase and fresh value buying by mutual funds of around $9.2 million net inflow with reallocation towards sectors having strong growth potential. Heavyweight Oil and Gas sector also shored up market sentiments on the back of stability in international crude oil prices.  

Faizan Ahmed of JS Research stated that investor participation also improved as average traded value and volumes posted strong improvement of 10 percent WoW and 30 percent WoW, respectively. Other key highlights of the week were: (1) Government planning to float further $3.5b worth of Eurobonds over a period of three years with $500m planned before June-2016, (2) Provisional tax collection numbers improving by 19 percent YoY in 8MFY16, (3) Auto sales declining by 9 percent YoY in Feb-16 but up an impressive 46 percent YoY in 8MFY16, (4) Total cement dispatches growing by 25 percent YoY in Feb-2016 and 9 percent YoY in 8MFY16, (5) Oil sales edging up by 5 percent YoY in 8MFY16, (5) International iron ore prices rebounding sharply and (6) Lucky Cement (LUCK) getting license to generate 660MW coal power.

FXTM Research Analyst Lukman Otunuga commented that the global stock markets swung frantically at the end of the week, meandering between losses and gains following the ECB stimulus shocker which caused anxious investors to offload and reload assets in a bid to be on the right side of the trade. Although most equities were offered a welcome boost but this was swiftly relinquished at the ECB press conference when expectations of further rate cuts were quashed and risk aversion took center stage. He said that Asian equities have managed to rebound from the post-ECB selloff but may be set to lose steam as sentiment towards the global economy remains quite low. “Europe and America concluded Thursday depressed and may continue their downward trajectory as investors scatter away from riskier assets amid the fading expectations of further rate cuts by the ECB. It must be understood that stock markets are still vulnerable and may be poised for further decline in the future as the ECB fiasco compounds to the ongoing global woes”, Lukman Otunuga concluded.

Saad Hashemy from Topline observed that govt Debt Policy Coordination Office (DPCO) published Medium Term Debt Management Strategy (2015/16 – 2018/19). He said that maturity of external debt is not as large as being speculated and Pakistan’s total debt and debt servicing are on a declining trend, which is contrary to general perceptions. He said that repayment of external debt is expected to remain around $4-5b in the medium term (FY16-FY19) and lower still in the long term (going out to 2040) as per the document).  This estimate is on the lower side.  Even though this only includes public debt and does not include external debt servicing of Public Sector Enterprises (PSEs) and Private Sector, it is lower than the latest International Monetary Fund (IMF) review’s balance of payments forecasts that lists average annual debt servicing of around US$7bn in the medium term. The government plans to raise annual average external debt of US$6.5bn in medium term (FY16-FY19) to pay off its external debt maturities.  This includes raising a total of US$4.0bn through Eurobonds in the next four years among others. The document has forecasted the government’s debt level projected for June 30, 2016. However, the domestic debt level projected for June 30, 2016 of Rs12.7tn is lower than January 31, 2016 level of Rs13.1tn showing that actual year end figures are likely to be higher than projected. External debt is projected to increase to US$52bn, up by around US$1.1bn.

Largest amount of debt maturity of Rs6.0tn is this year in 2016 and over Rs2tn in 2017.  Over Rs5.6tn in 2016 is maturity of domestic debt. This is because bulk of domestic debt is short/medium term and is perpetual in nature, where government constantly refinances through new issues.  Further, this maturity is expected to be refinanced at a much lower rate as government will benefit from a cumulative 300 basis points reduction in interest rates during mid-November 2014 to May 2015.

A foremost yardstick for measuring debt sustainability is debt servicing as percentage of total revenues.