The stock market remained under pressure during the last week as the KSE-100 index lost 1,323 points (2.9 per cent) to settle at 45,222 points amid persistent political uncertainty and concerns on foreign outflows.
The week opened on a negative note as interrogation by the Joint Investigation Team (JIT) of the prime minister’s family dampened sentiments at the bourse. The index plunged 1,900 points on Monday, which was the biggest single-day drop, and closed deep in the red. However, the market staged some recovery in the later sessions.
By mid-week, the situation was further aggravated as the rupee unexpectedly depreciated by 3.2% against the dollar to stand at Rs108.25. Although long awaited, given the declining foreign reserves and the exacerbating current account deficit, the sudden fall was the biggest one-day loss since 2008. Rupee reverted to trade at Rs105.70 against the dollar in the inter-bank market on Thursday.
The KSE-100 Index has been under pressure since the JIT proceedings against the first family began. On May 30, the closing level of the index was around 50,591.57 points. However, the index decreased to 46,565.29 points by June end, declining by 7.9% in just a month.
Due to lack of investor interest, average trading volumes declined from 212 million in the previous week to 166 million (down 22% week-on-week), while volumes were down to Rs9.2 billion. Activity was focused in retail favourite stocks, which included TRG (73 million), EPCL (47 million), BOP (42 million), KEL (35 million) and ASL (29million).
With that said, downside to the index was led by commercial banks (-546 points); on account of lower than expected inflationary readings (3.93% year-on-year in Jun’17 and 4.15% year-on-year in FY17) signalling a delay in interest rate hike, cements (-299 points) and automobile assemblers (-169 points) as concerns over USD appreciation opened up chances of margin erosion (although historic trend suggests that local players have reasonable power to pass on potential impact).
On the other hand, oil & gas exploration companies (+172) contributed positively to the index. The sector provided respite to the market as recovery in oil (Arab Light up by 6% on average WoW) supported sectoral players.
Scrip-wise, index-dominant LUCK and DGKC remained under pressure eroding 215 and 28 points respectively off of the market, while HBL and UBL cumulatively dragged the benchmark index by 449 points. PPL was the top index gainer with a contribution of 144 points, which was primarily attributable to revision in Sui’s wellhead gas prices to PP2012 at 55% discount applicable retrospectively from Jun’15. Other notable outperformers were PIBTL, HUBC, OGDC and MLCF cumulatively added 85 points. While, HCAR, PAEL pulled the KSE-100 Index down by 146 points.
Of the major heavyweight sectors, E&Ps (+2.5% WoW) closed in the green due to recovery in international oil prices and depreciation of PKR against the USD. Other key sectors such as OMCs (-1.5% WoW), fertilisers (-2.1% WoW), autos (-5.7% WoW), banks (-4.3% WoW) and (5) cements (-4.8% WoW) extended losses during the week.
Pertinently, foreign investors offloaded $5.84 million during the week, which was largely absorbed by domestic individuals and insurance companies with net buy set at $13.69 and $13.68 million, respectively.
Mutual funds ($1.9million) were net sellers during the week, while companies ($2.7 million) and & Banks/DFIs ($3.9 million) remained net buyers.
Major buying was seen in the cement sector ($5 million) whereas selling was seen in oil and gas exploration ($6.2 million) and banks ($3.3 million).
Among major highlights of the week were; ADB expressed intent to give $6 billion loans to Pakistan over the next three years, auto vendors opposed disbanding of EDB, Tariq Bajwa was named new SBP governor, construction of Dasu project likely to begin within a week and cotton sowing target missed by 12%.
WINNERS OF THE WEEK: Pakistan Petroleum: Pakistan Petroleum Ltd specialises in the exploration and production of crude oil and natural gas. The company also sells liquefied petroleum gas and condensates.
Pakistan International Bulk Terminal: PIBT has been setup as the country’s first terminal for handling coal, clinker and cement on build, operate and transfer (BOT) basis at Port Qasim Authority.
Sui Southern Gas: Sui Southern Gas Company Limited transmits and distributes natural gas and constructs high pressure transmission and low pressure distribution systems. The company’s transmission system extends from Sui in Balochistan to Karachi in Sindh.
LOSERS OF THE WEEK: Honda Atlas Cars: Honda Atlas Cars Pakistan Limited manufactures, assembles and sells Honda vehicles through its many divisions within Pakistan.
Pak Elektron: Pak Electron Limited manufactures and sells a variety of electrical products and domestic appliances. The Group’s power products include transformers, energy meters and switchgears. Their appliances consist of a range of deep freezers and air conditioners. The Group also has an agreement with Sony Pakistan (Pvt) Ltd, for which Pak Electron will manufacture Sony brand televisions.
National Refinery: National Refinery Ltd manufactures and distributes lube base oils and petroleum fuels. The company markets its products to customers throughout Pakistan.
OUTLOOK: According to AHL Research, focus is now set on the submission of findings by JIT to the Supreme Court on Monday (July 10), which should facilitate the direction of the ongoing political racket.
Any opportunity of dissipating political clouds could provide a new support to the market. The KSE-100 is currently trading at a cheaper price to earnings ratio of 9.2x (2017) compared to Asia Pacific regional average of 13.2x while offering twice as better dividend yield of 5.3pc versus 2.6pc offered by the region.
The conclusion of JIT investigation and continued political uncertainties would keep the market under pressure.
However, further depreciation of the rupee shall guide the market in specific direction where power, textile and export oriented stocks would remain in the limelight, while import-oriented stocks could witness significant attrition in the prices.