LAHORE - The textile sector remained in the limelight in stock market this week as the EU Trade Package has gone into effect from November 15, whereas the cement sector stocks were also amongst the top volume leaders due to varying news pertaining to reduction and then recovery in retail cement prices. The local bourse underwent a consolidation above the 16,000 level and the KSE 100 index closed the week at the 16,198 level, down 0.3 per cent WoW. Average daily volumes improved to 170 million shares, up 0.3 per cent WoW. Foreign interest also declined this week, as foreigners were net sellers of US$0.6m in the market. On the macro front, remittances in October stood at a record $1.37b. Moreover, auto sales figures released during the week for October recorded a decline of 38 per cent YoY and 3 per cent MoM.

T-bill cut off yields posted a modest rise (up 4-6bp) this week. Current 63-73bp discount to the policy rate suggests auction results are an unlikely gauge of December 2012 MPS, where experts eye a 50bp rate cut.

Fixed income markets are evidently building in further monetary easing. With the KSE-100 chalking up its all time high on the back of a 42 per cent rally so far in 2012, presumably so is the equity market. Valuations suggest otherwise where KSE’s P/E multiple has remained stubbornly flat since August 2011, implying that market performance is really just pricing in strong corporate earnings growth over 2011-12.

KSE-100 2012E earnings yield of 14.3 per cent is currently 507bp higher than the 6M T-bill yield vs. historical gap of 79bp. Key to note is that current 6.7 per cent 2012E D/Y is 260bp below T-bill yield (440bp historical discount).

We believe this makes a strong case for yield plays.

Experts said that the oil sales  during the outgoing month of Oct have declined by a hefty 13 per cent YoY led by lower furnace oil (FO) high speed diesel (HSD) on account of lower sales by marketing companies other than PSO due to eroding margins. However, on account of increased CNG load shedding, the sales of motor spirit (MS) increased by a substantial 36 per cent YoY.

Owing to double digit decline in Oct, the cumulate 4MFY13 oil sales fell by 4 per cent YoY to 6.4m tons compared to 6.7m tons in the same period last year.

The dip was largely attributable to 46 per cent decline in JP sales that fell on account of  limited exports to Afghanistan coupled with lower FO off takes.

With 4 per cent YoY decline in oil sales during 4MFY13, experts revise downwards full year industry’s volumetric sales and market share assumptions for FY13 by 2 per cent YoY.

They said that with efficient management of products and capitalization of gains over gas load shedding, PSO has increased its market share and product distribution in the right direction.

During the week, market remained ripe with rumors that Engo Corp has entered in an agreement with Al Marai (Saudi Arab based dairy producer) to sell 91.2m shares (12 per cent of total outstanding shares) of Engro Foods to the dairy company.

The deal is rumored to be struck at the price of Rs92/sh. This explains the recent activity in EFOODS which closed on upper cap of 5 per cent yesterday and is currently trading 4.7 per cent up as of last print.

ENGRO holds 673.0m shares (88.6 per cent) of EFOODS at carrying value of Rs10/sh. This deal translates into a one time gain of Rs7.5b and cash inflow of Rs8.4b for ENGRO. Post this deal ENGRO’s stake in EFOODS will drop down to 581.8mn shares (76.6 per cent). The deal is positive for ENGRO as it would significantly reduce ENGRO’s consolidated debt arising from their fertilizer business.