Zubair Yaqoob
Karachi
This week trading commenced on a negative note following last week’s trend as investors continue to take account of surge in inflation to 68 months high in lieu of regular adjustment in utility prices, tighter monetary policy, delay in state enterprise fund, and expectation of weaker result season of some sectors including Cements, Refineries, Automobile and Steel.
Furthermore, political uncertainty kept investors on the back foot given vote of no confidence over senate chairman while traders have announced a country wide protest and strike on CNIC condition and one political party announced a long march. As a result, the benchmark KSE-100 index closed below 32K mark at 31,666pts, down by 437pts or 1.4% WoW. Contribution to the downside was led by Commercial Banks (-239pts) amid selling from mutual funds, Tobacco (-57pts), Oil and Gas Exploration Companies (-52pts) on the back of massive decline in international oil prices, Power Generation and Distribution (-35pts), and Oil and Gas Marketing Companies (-32pts).Scrip wise major losers were PPL (-69pts), MCB (-62pts), PAKT (-57pts), UBL (-56pts), and BAHL (-44pts). Whereas, scrip wise major gainers were POL (+37pts), ENGRO (+17pts), and PKGS (+15pts). Foreigners accumulated stocks worth of USD 3.4mn compared to a net buy of USD 8.4mn last week. Major buying was witnessed in Cement (USD 3.1mn) and All Other Sectors (USD 1.2mn).
On the local front, selling was reported by Mutual funds (USD 4.8mn) followed by Companies (USD 1.7mn). That said, average daily volumes for the outgoing week were down by 25% to 57mn shares likewise value traded decreased by 21% to USD 13mn. Other major news: Inflation hits 68 months high of 10.3 percent in July, Forex reserves up $199 million, Govt increases petrol price by Rs5.15/litre for August, Power generation increases to 122,710GWh in FY2019, and Imported cotton: Duty, ST to be re-imposed from Monday. Analysts view the market to remain range bound due to lack of positive triggers in upcoming week followed by feeble results of cyclical sectors.
However, recent appreciation of PKR against green back which is trading at all-time lowest in terms of REER would give confidence to foreign investors and attract foreign flows in market. Whereas, key risks to the index include economic concerns on account of high Current Account Deficit and slowdown in large scale manufacturing. The KSE-100 is currently trading at a PER of 5.9x (2020) compared to Asia Pac regional average of 12.8x while offering a dividend yield of ~11.1% versus ~2.5% offered by the region.
