The extended dream run of Karachi Stock Exchange over the last three years has been led by strong Foreign Portfolio Investment (FPI), where net FPI of $879m since July 2012 has been a key driver for Pakistan’s equity markets re-rating. KSE forward P/E has increased to 8.3x from 6.1x in June 2012, as foreign shareholding has almost tripled to $6.6b (8.6 per cent of the total market cap) from $2.6b (7.0 per cent of the total market cap) in June 2012.

According to stock market experts, in the backdrop of net FPI of –$65.6m over the previous 15 trading sessions, the benchmark KSE-100 index is down 3.0 per cent or 886 points during the last six trading days as fears of further selling from the foreign front creep in. Out of the total net selling of $65.6m, around $53m net selling was witnessed in the electricity sector where Abraaj offloaded shares worth $65m in K-Electric (KEL).

Interestingly, foreigners have turned net sellers in the Construction and Materials (Cements) sector (net selling of $21m during the last 12 sessions vs. net buying of $34m since August 2014) while they have shown a consistent bearish trend in the Chemicals (Fertilizer) sector with net selling of $61m since November 2014. Foreign investors’ preference for Pak Banks is largely intact though supply overhang from recent government divestment in United Bank Limited (UBL) has slightly weakened the trend recently (net selling of $3m during last ten trading sessions vs net buying of $35m during the preceding two months). Meanwhile interest in Pak Oil and Gas is back given recent improvement in international oil prices as foreigners have invested $13m in this sector. Atif Zafar, an analyst with JS Research, expects foreign interest in Pakistan equities to remain intact as valuations remain attractive. KSE still trades at 50 per cent discount on earnings to its regional peers, he added.

During the week, foreign exchange reserves held by the State Bank of Pakistan (SBP) increased 0.56 per cent WoW to $10.42b, while foreign reserves held by banks other than the SBP stood at $4.82b, taking total reserves to $15.24b. Reserves are likely to go up further on the back of $0.55b tranche approved by International Monetary Fund (IMF) and $0.7b received from the US on account of Coalition Support Fund (CSF).  During the week, MCB bank announced 2014 consolidated profits of Rs24.7b compared to Rs21.8b in 2013, up by 13 per cent. The bank also announced interim cash dividend of Rs4/share in addition to Rs10/share already announced during the year.

MCB’s Net Interest Income (NII) increased by 15 per cent YoY to Rs43.6b in 2014 due to improving Net Interest Margins (NIMs). NIMs of MCB got support from higher yield on increasing PIB portfolio and volumetric growth in earnings assets.

Along with higher core income, higher Non-Interest Income also supported bottom line of bank. Non-interest income of MCB increased by 20 per cent led by higher other income. On the other hand Non-interest expense increased by 10 per cent. The bank booked provisioning reversals of Rs1.4b in 2014 as compared to Rs2.8b during the last year. In 4Q2014, MCB profits stood at Rs6.2b (EPS Rs5.6) against Rs4.2b (EPS Rs3.8) in 4Q2013, up by 46 per cent YoY. In 4Q2014, NII of the bank increased by 23 per cent, whereas Non-Interest Income increased by 47 per cent. Non-interest expense remained on lower side during 4Q2014, declining by 4 per cent. On QoQ basis, earnings declined by 6 per cent due to higher provisioning charge and higher admin expense. NII of the bank increased by 9 per cent, whereas Non-interest expense increased by 15 per cent in 4Q2014.

According to experts, gradually rising tractor sales and easing inflationary pressures are likely to result in 20 per cent more profits for MTL in 2QFY15. During the quarter, tractor sales of MTL increased by 10.5 per cent to 6,725 units due to lower GST and commencement of loaning from ZTBL and other banks. As a result, analysts expect revenues to increase by 11.1 per cent to PKR5.3b. Gross margins would also expand to 20.5 per cent (compared to 19.3 per cent in 1QFY15) due to easing inflationary pressures and lower material costs.