LAHORE - Political jitters continued to shake market participants with KSE-100 index closing down 1.5 percent WoW. The prime minister finally accepted the finance minister's 'leave for absence' due to his ill-health, while sit-in in the capital continued to create an environment of instability.
Other than political news, government's decision to shut Furnace Oil (FO) based power plants also affected performance of OMCs (down 4.1 percent WoW) and Refineries (-2.7 percent WoW) sectors, wiping out 218 points from the index. As a result, across the board pressure was seen in other sectors as well such as; Fertilisers (down 1.3 percent WoW) and Cements (down 1.5 percent WoW). As a result of overall uncertain market outlook, Mutual Funds and Foreign Investors continued to offload positions with net selling of $3.5 million and $6.2 million worth of equities, respectively. Some improvement in activity was seen with overall average volumes traded increasing by 5.8 percent WoW to 112 million shares but majorly remained concentrated in low-mid market cap stocks (like K-Electric) due to which average traded value declined by 7.9 percent WoW.
Experts said that during the outgoing week, KSE100 Index lost 596 points to close at 40,248 points, amid lack of triggers and continued political uncertainty. On the macro side, data points depicted a mixed picture. Pakistan’s LSM growth for 1QFY18 was recorded at a robust 8.4 percent YoY (driven by automobiles, steel and POL production). Pakistan’s current account deficit ballooned to over $5 billion against $2.3 billion in same period of last year, despite an 8 percent YoY growth in textile exports during the period. Moreover, S&P assigned a ‘B’ long term rating to Pakistan’s upcoming sukuk and unsecured notes issue. Market activity increased during the week and investors turned their attention towards 2nd tier and 3rd tier names, as evident from 6 percent WoW rise in ADTO to 112 million shares despite a 6 percent WoW drop in ADTV to $48 million. Significant investor interest was noted in K-Electric (KEL) and the scrip remained the volume leader during the week (average 116 million shares) on the back of rumors of headway of its acquisition by Shanghai Electric Power Company.
Most of the major sectors such as commercial banks (-1.5 percent WoW), cements (-1.4 percent WoW), chemicals (-0.9 percent WoW), oil & gas (-0.8 percent WoW) and food producers (-8.2 percent WoW) ended the week in the red zone, whereas electricity (+1.9 percent WoW), electrical and electronic goods (+8.9 percent WoW) and illiquid tobacco (+11.9 percent WoW) gained during the week. Foreign investors remained net sellers during the week offloading $6.3 million worth of scrips. Most of this selling was concentrated in cements ($3.7m) and commercial banks (4.3m). This was offset to some extent by buying in oil & gas (5.1m).
Over the coming days, market sentiments in downstream oil stocks are likely to improve as the government has given the green-light for partial recommencement of production of power from furnace oil. Furthermore, monetary policy announcement by the central bank due on Nov 24, 2017 is likely to prove to be a non-event given market consensus on status quo on policy rate. Another important development to watch out for is Pakistan’s sukuk and eurobond issue where strong participation and appetite for Pakistan’s sovereign debt, and consequent beefing up of forex reserves, could potentially boost investor confidence. Our top picks are PPL, MARI, EFERT, FFC, NML, UBL, MCB, HUBC and NCPL.