JS Securities Limited – JS Research (28-01-2020)

Karachi, January 28, 2020 (PPI-OT): LSM declines 4.61% YoY in Nov-2019
LSM declined for the 6th month in a row in Nov-2019, contracting by 4.61% YoY. Cumulatively for 5MFY20, LSM has declined by 5.93% YoY.

For Nov-2019, the auto sector was once again one of the worst hit, declining by a mammoth 44.67% YoY (37.75% in 5MFY20) in the LSM index. Electronics – down 44.94% YoY – was another constituent to experience significant contraction during the month.

One encouraging sign for some sectors was that the pace of decline has slowed (positive growth was also seen in some cases), which can be seen when one compares the monthly decline to 5MFY20 numbers

The recently released data on Large Scale Manufacturing (LSM) shows that there was yet another decline in manufacturing activity in Nov-2019 as LSM contracted by 4.61% YoY during the month. This was the 6th consecutive monthly reduction in LSM activity (12th if one month of stagnant performance is ignored), a telling indicator of the current sluggishness in economic performance. Various measures, such as devaluation of the PKR, high interest rates and jump in energy tariffs have cumulatively taken a toll on the economy, as witnessed by the LSM numbers of late. Cumulatively for 5MFY20, LSM has declined by 5.93% YoY.

For Nov-2019, the auto sector was once again one of the worst hit in the aftermath of stabilization measures, declining by a mammoth 44.67% YoY (37.75% in 5MFY20) in the LSM index. Electronics – down 44.94% YoY – was another constituent to experience significant contraction during the month. Other sectors showing negative performance during the month also included (1) iron and steel products (-8.74% YoY), (2) coke and petroleum products (-5.45% YoY), and (3) engineering products (-19.04% YoY). One encouraging sign for some sectors during the month was that the pace of decline has slowed (positive growth was also seen in some cases), which can be seen when one compares the monthly decline to 5MFY20 numbers (examples include food, beverages and tobacco, coke and petroleum products and iron and steel products). Whether this is a sign of manufacturing activity having bottomed out will become clearer in the next few months, whereas potential increases in energy tariffs could pose downside risks to LSM in the short term.

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