LAHORE  - The Karachi Stock Exchange (KSE) witnessed range-bound activity during the outgoing week as the benchmark KSE-100 index closed at 34,527, down 0.4 per cent WoW. Average trading volumes picked up by 15 per cent WoW to 458 million shares/day, while foreigners returned net sellers worth US$5.6 million. Investor focus was largely skewed towards second and third tier stocks (like DCL, KEL, and QUICE) during the week. Tractors and Sugar companies invited investor interest as Sindh and Punjab governments collectively allocated subsidies on over 54k tractors for farmers and ECC hiked import duty on sugar to 40 per cent from 20 per cent respectively. Other key highlights of the week were: (1) Finance Minister accepting numerous Senate recommendations on the federal budget including companies to be given option to distribute at least 40 per cent of the profits or 50 per cent of the paid-up capital in context of tax on undistributed reserves, (2) FDI declining by 47 per cent YoY in 11MFY15 and (3) Ministry backing revocation of PSO-PNSC agreement.

Experts said that doom and gloom surrounding the country’s textile sector is slowly subsiding as the fundamentals of the sector are recovering gradually. Consequently, the sector has rallied by 3.36 per cent since May 2015 and in process has outperformed the index by 1.1 per cent over the same period. Aggressive cut in DR on back of receding inflation in the country, recovery in PKR/EUR parity, fall in fuel and power cost and budgetary incentives given to the sector are the key reasons behind the improvement in the sentiments. The budgetary incentives given to the sector included, i) further cut in LTFF and EFF rates, ii) duty draw-backs, iii) less than anticipated increase in sales tax on exports and iv) zero rating maintained on import of textile machinery. Though increase in minimum wage rate to PKR13,000/month will likely increase the cost of production; overall the budget FY16 was positive for textile sector. We maintain our conviction on NML as our top pick in the textile sector, offering a total of return of 27 per cent on the last closing.

Experts said that the KSE-100 Index shed 0.4 per cent WoW to close at 34,527 points as investors preferred to trim their positions close to the June year-end. During the week, average daily volumes increased by 15 per cent WoW to 458 million shares while average daily value decreased 23 per cent WoW to Rs13.4 billion (US$131.2 million). Major gains were seen in Media (9.1 per cent), Food Producers (3.4 per cent) and Engineering (2.9 per cent), while major fall was seen in Telecommunications (2.5 per cent) during the outgoing week. Local banks and foreigners were major net sellers of US$22.5 million and US$5.7 million respectively during the week, while local mutual funds were net buyers of US$11.2 million. Major net buying during the week by foreigners was seen in sectors like Chemical (US$6.9 million) and Telecommunication (US$1.2 million). However, major selling by foreigners was seen in Power Generation & Distribution (US$12.2 million). In the revisions to the FY16 Federal Budget, Minister for Finance & Revenue Ishaq Dar announced that companies with huge reserves will be given an option to distribute at least 40 per cent of profits or 50 per cent of paid up capital in order to encourage cash dividend payout. Dewan Cement Limited (DCL) has decided to convert its outstanding loan of Rs500 million into 50 million ordinary shares of Rs10 each.

During the week, Moody’s upgraded ratings of 5 Pakistani banks to B3 from Caa1. These banks include National Bank (NBP), United Bank (UBL), Habib Bank (HBL), MCB Bank (MCB) and Allied Bank (ABL).     

In the Pakistan Investment Bond (PIB) auction during the week, Govt. accepted bids amounting to Rs52 billion against target of Rs50 billion. Cut off yield increased by 55-80bps with 3-year PIB at 8.1 per cent and 5-year at 8.9 per cent, while SBP rejected bids for 10-year bonds.

The Asian Development Bank (ADB) has postponed the approval of its second US$400 million tranche of the US$2 billion loan for energy sector reforms, due to Govt.’s inability to meet the requisite conditions.

Private Power and Infrastructure Board (PPIB) approved Thar coal-based power generation project of 1,400MW (350 MW each) to be set up at Thar by Shanghai Electric Group of China. This is one of the 'prioritized projects' included in the China-Pakistan Economic Corridor and is scheduled to start generation in 2017-18.

Dawood Hercules (DAWH) has entered into a share purchase agreement with Pakarab Fertilizers to sell its entire shareholding in DH Fertilizer valued at approximately Rs2.0 billion.