LAHORE - Amid hope of better June-end earnings, market rallied to yet another high of 23,400 points mark. Market gained by 2 per cent however volumes declined by 18 per cent due to short trading timings. Result season commencement, Pak Rupee devaluation and Kapco international investor’s divestment plans remained the key highlights of the week. Engro Corp remained highly volatile amid concerns on gas supply. While cement, banking and telecom sectors remained on investors radar during the week. PTC announced its better than expected half year result. While expectation of monetary tightening going forward kept interest in banking stocks. Cement sector also remained active amid hope of better June earnings due to declining international coal prices and better margins. Going forward, future roll over week and key result announcements will drive the market. 

Experts said that the initiation of the result season for June 2013 has stirred up investor confidence where the KSE 100-index gained 392 points to close at the 23,429 level. However, average daily volumes dropped 18 per cent to 216m shares this week vs. 263m shares a week prior. The key result announced during the week was that of PTCL, which delivered robust 1H2013 earnings (+15 per centYoY) alongside a somewhat rare dividend payout of Rs1/share.

They said that the government’s effort to initiate project and increase trade with the Asian and European region is ringing the right chord with the investors. Cement sector was heavily traded as Maple leaf, Pioneer Cement, Cherat Cement, and Kohat Cement closed at their upper circuit as the sector in general is trading at a discount the current market multiple and with improvement of financial position of most of the companies in this sector this gap is likely to reduce in coming months.

Experts in a report published by the AHL observed that KSE100 has commenced the new fiscal year (FY14) on a solid note and the benchmark has so far, in Jul’13, recorded a massive 8.6 per cent, not only topping the Asia Pac region but also the key MSCI indices’ returns (see table alongside). Encouragingly, despite faster-than-regional average currency depreciation during Jul’13 (1.2 per cent MTD), FF (foreign flows) to Pak equities have been flowing in undeterred (USD 21mn MTD, USD 432mn YTD’13) where other regional markets have experienced massive outflows, not only in Jun’13 but during current month as well. Commencement of the full-year corporate result season from mid-Jul’13 onwards alongside positive impacts of the currency depreciation on key market-driving sectors (impact given on next page) have kept KSE buoyant so far.

Encouraging enough, average traded volumes at KSE in the month of Ramadan have also been prosperous so far, like no other month of Ramadan in the last decade at least (average volumes at 190mn shares so far against last decade’s average 146mn shares with exception of 2005 and 2007 when average volumes were recorded over 250mn and 300mn, respectively).

With the decline in PKR against the greenback in Jul’13 (1.2 per cent MTD, 3.8 per cent YTD), we expect Jul-Sep’13 quarter earnings for key sectors to further beef up n addition to the support provided through the recent cut in the policy rate by the central bank (50bps to 9 per cent). Sectors benefiting from the local currency decline include IPPs (USD-based return mechanism), Textiles (for improved exports), E&Ps (USD-based product pricing), Telecom (USD-based LDI earnings), Chemicals (USD-denominated margins) while the situation stands mixed for Cements (fuel import cost v/s cement exports). Company-wise earnings impact is provided in the table alongside. Moreover, recent development on part resolution of the notorious circular debt to the tune of PKR 322-326bn out of total PKR 503bn, would set a milestone in the energy and Oil&Gas sector recovery and should positively benefit these sectors’ stocks (HUBC, KAPCO, NCPL, NCL, PKGP, PSO, PPL, OGDC) with better dividend announcements at Jun’13 results on account of better cash positions of the stated companies. The recent cut in policy rate by the SBP should also provide further support to corporate sector profits ahead (especially highly leveraged Cements, Textiles and few Fertilizers).

Currently, the KSE100 is trading at a 2014 forward PE of 7.4x and an attractive dividend yield of 6.3 per cent.