Karachi, December 16, 2022 (PPI-OT): Weekly Review

In a week which saw range-bound movement for the index, the highlight of the week was Thursday when the market took a hit, culminating to the KSE-100 losing 1.0% WoW to close at 41,301pts. Economic uncertainty caused by enhanced delays in the 9th Review in the program with the IMF, which along with rising interest rates have led to a lackluster sentiment in the market. Further exasperating the sentiment is the critical level of the country’s FX reserves, having dropped to USD12.6bn. Hence, average volumes in the market decreased further by 9.9%WoW, down to 180mn shares.

Major news flows during the week were; i) five financing pacts worth US$775m inked with ADB, ii) IMF wants to observe 3 more quarters, examine flood rehab plan, iii) Saudi Arabia may increase the amount of oil supply to Pakistan on deferred payments to $2.4 billion a year, iv) Reko Riq project greenlit with definitive agreement signed, v) Jul-Nov workers’ remittances decline 9.8%YoY, vi) Fed raises rates by half percentage point, sees economy nearing stall, and lastly vii) Jul-Oct LSM sector output down 2.89%YoY.

Sector-wise, the top performing sectors were; i) Miscellaneous (+11.2%WoW), ii) Tobacco (+5.5%WoW), iii) REIT (+3.6%WoW), iv) Textile Composite (+2.7%WoW), and v) Vanaspati and Allied (+1.7%WoW), while the least favourite sectors were; i) Leasing companies (-8.0%WoW), ii) Automobile Parts (-7.6%WoW), iii) Close-end Mutual Funds (-6.1%WoW), iv) Refineries (-4.5%WoW), v) and Jute (-4.1%WoW). Stock-wise, top performers were; i) PSEL (+28.6%WoW), ii) PAKT (+6.5%WoW), iii) SYS (+6.1%WoW), iv) ENGRO (+5.2%WoW), and v) DCR (+3.6%WoW), while laggards were; i) PGCL (-16.0%WoW), ii) LOTCHEM (-15.9%WoW), iii) TGL (-13.0%WoW), iv) THALL (-10.2%WoW), and v) MTL (-9.4%WoW). Flow-wise, Foreigners topped the net sellers, offloading US$9.6mn followed by Mutual funds (US$7.1mn), Individuals (US$2.5mn), Insurance Companies (US$1.4mn) and NBFC (US$0.1mn). While Banks, Companies, Other organizations and Brokers were on the buying side, with a net buy of US$12.8mn, US$6.2mn, US$1.5mn, and US$0.2mn respectively.

Outlook

With the rising policy rate amid political uncertainty, the market remains in a state of indecisiveness. Incoming news regarding delays in IMF was bound to invoke some gloom, the longer it gets delayed the more the uncertainty is going to influence the market, keeping volumes away. The local currency has started paring some of the gains it had made recently, depreciating to ~PkR225/USD at the time of writing as FX reserves stand at critical levels despite restrictions on the opening of LCs. With the winters approaching, inflation is expected to remain persistent, while market participants expect another cumulative rate hike of ~200bps in FY23. We retain our liking for the IT sector in the current backdrop and advocate for gradual accumulation in fundamental scrips with a longer term focus.