LAHORE - The madness intensified at the Pakistan Stock Exchange (PSX) as the benchmark KSE-100 index closed below 40,000 after almost a year by shedding another 1,466 points this week (-3.5 percent WoW), taking losses in YTD 2017 to an astonishing 17 percent.

The overall activity remained abysmal as average traded volumes and traded value clocked-in at 146 million shares per day (+4.1 percent WoW) and $59 million per day (-16.5 percent WoW), respectively. Local Mutual Funds ($30m), Individuals ($8m) and Brokers ($6m) were key net sellers during the week, while foreigners were net buyers of $39 million. The majority of the investors kept away from the market as their battered confidence failed to find any support as domestic politics and economy continues to attract headlines for all the wrong reasons. The army chief voiced his concerns over the deteriorating macro-economic indicators, while the State Bank of Pakistan (SBP) in its annual report also admitted to external and fiscal accounts pressures. To add to the rhetoric, the World Bank in its report painted a very dismal picture of the county’s external balance. All this combined with the release of September 2017: trade balance numbers (deficit expands by 22 percent YoY to US$2.8b) and remittances numbers (down 20 percent YoY and 34 percent MoM to $1.29b) caused the rupee to slip by 1.5 percent with the State Bank of Pakistan eventually intervening by calling an emergency meeting of the exchange companies. The stock and sector specific news flows further plundered market’s confidence as Nepra announced a disappointing new multi-year tariff for K-Electric (KE, -11 percent WoW) and rumours circulated of an unsuccessful meeting between the cement manufacturers (-9 percent WoW) over pricing.

During the week, top 10 worst performers as per KSE-100 index points were LUCK (-8 percent WoW), HBL (-3 percent), ENGRO (-4 percent), DAWH (-8 percent), SNGP (-8 percent), MARI (-9 percent), HUBC (-4 percent), PSO (-5 percent xDxB), MLCF (-14 percent), and SEARL (-11 percent), with cumulative negative contribution of 659 points. While only 12 of the KSE-100 index

cripts managed to post gains, accumulating 184 points out of which POL added a solid 131 points.

Sector-wise Engineering shed 11 percent WoW; cement was down 9 percent as allegedly the Cali cartel meeting didn’t go as planned and has been deferred till a later date, OMC’s were down 8 percent, power contracted 7 percent, fertilisers lost 4 percent of their potency, while E&P’s & banks fared a little better losing 2 percent & 1 percent, respectively.

Whether funds admit it or not, they must be overwhelmed with redemptions as they sold $30.2 million this week alone. This is the highest weekly sell by Mutual Funds in 2017; however, they remain adamant that redemptions are low but then one begs to question why are they bailing? Foreigners were net buyers of $38.9 million (vs $9.8 million last week), highest weekly buying in past couple of years (barring large share purchase deals).

Buying was concentrated in others ($19.6m), cements ($5.6m), banks ($5.4m), power ($3.8m), OMC ($2.3m) & fertilisers ($1.4m). During the week, Pakistan International Airlines (PIA) reported a loss of Rs45 billion (LPS Rs8.6) in 2016, up from a loss of Rs32 billion (LPS Rs6.31) in 2015. TPL Trakker (TPL) announced that its subsidiary TPL Life Insurance has been accorded the approval from the Securities and Exchange Commission of Pakistan to issue, circulate and publish prospectus for issue of 40,000,000 ordinary shares.

Attock Refinery (ATRL) approved offer of 3.95 percent out of its 30 percent shareholding of Attock Gen Limited (AGL) to the general public for listing on the Pakistan Stock Exchange. Attock Gen operates a 156MW power plant.

The week started with Economic Coordination Committee of the Cabinet (ECC) announcing a number of developments including, imposition and enhancement of Regulatory Duty (RD) on around 297 items as a fresh revenue measure, extension and clarity in textile export package, and deregulation of HSD and revision of OMC margins. In other news, automotive sales for September 2017 took a breather (down 15 percent MoM). Moreover, National Refinery Ltd (NRL) announced commencement of its Isomerization unit which attracted investor’s interest in the stock, during the week. Ghandhara Industries Ltd (GHNI) also announced the launch of Isuzu D-Max pickup (expected by mid-2018). News concluded the week on a positive note with PM’s inaugural of Jhandial well (one of the largest oil and gas discovery).

A number of developments were witnessed on macro front where fiscal deficit in 1QFY18 recorded a 10-year low of 0.9 percent of GDP (Rs324b) driven by improved tax collection (up 22 percent YoY in 1QFY18). Moreover, remittances data showed a decline of 20 percent in September 2017 to $1.29 billion while Foreign Direct Investment (FDI) recorded an increase of 154 percent during the 2MFY18.

Following the ride in the red zone, market has breached the psychological level of 40,000 where political noise is expected to dominate in the upcoming week. However, with the start of quarterly result season, selective interest in scrips can be seen where fertiliser and auto sector is expected to post healthy earnings growth driven by improved local and international market condition during the quarter. Our top picks are PPL, MARI, EFERT, FFC, NCL, NML, UBL, MCB, HUBC and NCPL.