Karachi, October 07, 2022 (PPI-OT): Weekly Review
The bourse saw mostly an all-green week after a long break, up 42,085 points (2.33% WoW), as a falling trade deficit and rapidly appreciating currency breathed life into the overall investor sentiment. Further, rumours about rate-cuts in the upcoming monetary policy meeting on 10th October loomed large. Trade deficit contracted as per the outgoing month’s data, clocking in at US$2.9bn/US$9.2bn for Sep’22/1QFY23, down 20%MoM/21%YoY. Also, the new finance minister’s stance made his unfriendly stance clear for financial institutions involved in FX market volatility and speculation, instilling confidence into markets. Overall, the rupee appreciated by 3.9% during the week, end at PkR219.9/US$.
On the inflation front, CPI for the month clocked in at 23.2% YoY, a significant decline from previous month’s 27.3% YoY, majorly due to falling electricity charges (Aug’22 FCA’s refunded for consumers using 300units or less). The Govt’ also slashed the prices of petrol by PkR12.6/12.13 per litre for MS/HSD, respectively, majorly due to reduced Petroleum Development Levy (PDL) on PkR5/2.5 per liter. The government has announced a power subsidy of Rs100 billion to five export-oriented sectors for providing electricity at PkR19.99 per unit (all inclusive) rather than nine cents, the subsidy is estimated to cost the national exchequer PkR100bn.
Thursday night delivered the most negative news for the week as Moody’s downgraded the country’s long-term foreign debt rating to Caa1 from B3, ministry of finance heavily contested the decision and has been in talks with the credit rating agency since. On the commodities front, Oil ended the week with its biggest weekly gain since early March as OPEC+ put the market on course for further tightening ahead of winter, WTI futures traded near US$89, up 11% WoW.
Other major news flows during the week were; 1) The UN revised up its humanitarian appeal for Pakistan five-fold to US$816mn from previous US$160mn, 2) The US reportedly showed willingness to allow trade of Russian oil at discounted rates, 3) The Lahore High Court (LHC) on Thursday conditionally suspended up to 10% super tax for companies, 4) Aisha Ghaus Pasha has informed the National Assembly that Govt has not violated the IMF agreements by not increasing PDL on October 1, 2022, 5) The Govt will try to convince PM Shehbaz Sharif to approve a long demanded hike in tariff for both cash-strapped gas gas-utilities of the country. Sector-wise, amongst mainboards, Technology and Communication, Sugar and Close-ended MFs were amongst the top performers, up 8.9%/7.0%/6.6%WoW respectively.
On the other hand, Jute, Miscellaneous and Vanaspati and Allied was amongst the worst performers with a declines of 16.7%/4.8%/3.9% WoW. Flow wise, major net selling was recorded by Insurance (net sell: US$5.73mn) and Banks/DFIs (net sell: US$4.4mn). On the other hand, Individuals absorbed most of the selling with net buy of US6.72mn. Stock wise, top performers include, i) HUBC (+13%WoW), ii) FCEPL (+12.8%WoW), iii) TRG(+11.9%WoW), iv) SYS (+10.5%WoW), and v) HGFA (+9.1%WoW), while top laggards were, i) PGLC (down 12.8%WoW), ii) PSEL (down 7.4%WoW), iii) SML (down 6.7%WoW), iv) MUREB (down 6.6%WoW), and v) PSMC (down 5.6%WoW).
Outlook
Near term trajectory of the market may depend on the monetary policy announcement in the start of next week. Inflation at this point seems to have peaked during last few months, and may begin its downward move by the end of this quarter, although FX reserve position still remains alarming, dropping as low as US$7.9bn in last month’s numbers. Until FX reserve come toward a more secure position (import cover currently stands at 1.2x), the domestic currency is expected to remain volatile in the near-term.
Having said that, upcoming winter season may cause us to revise our inflation outlook as fears of further imported inflation loom large. However, recent slump in trade deficit due to falling commodities may be a positive development for country’s external account. Overall, macros remain shaky, we recommend market participants to stay cautious and focus on defensive plays.