Stock Review.

Byline: Shabbir Kazmi

Deal with IMF amongst top rationale keeps equities falling

During the week ended 3rd May 2019, the benchmark index of Pakistan Stock Exchange (PSX) closed at 36,123 points, down 2.7%WoW due to a number of reasons. On top of the list was inordinate delay in signing a package with the lender of last resort, International Monetary Fund (IMF).

Key news flow impacting equities market, during the week included: 1) ongoing negotiations with IMF for US$6.5 billion funding, IMF team pushing for power sector reforms including resolution of circular debt though 25% hike in consumer power tariff and gas prices, 2) CPI for the month of April'19 recorded at 8.8%YoY, in line with market expectations, pushed by higher food inflation, 3) petroleum division of the Ministry of Energy and OGRA stating that a hike in gas tariffs was imminent and necessary for curtailing persistent accruals in the domestic energy chain and 4) amongst a number of MoU's signed in Beijing under the Belt and Road Forum being held there, KEL signing an agreement for setting up a 700MW coal fired power plant with CMEC.

Stocks leading the KSE-100 Index into the green included: PSMC, HMB, HASCOL, and PAEL, whereas laggards were: ASTL, PSO, FFBL and POL. Average daily turnover tumbled 14.2%WoW during the shorter trading week to settle slightly more than 105 million shares with volume leaders being: UNITY, MLCF, PAEL, and PIBTL. With the start of the holy month of Ramazan and shortening of trading hours, consolidation is likely to be the norm.

Major checkpoints in the coming month include the possible entry into an IMF program (and associated terms and conditions), mid-month MSCI review and Budget FY20, possibly furthering retrenchment amongst market participants.

Pakistan's largest Exploration and Production (EandP) company, Oil and Gas Development Company (OGDC) has reported 9MFY19 profit after tax of Rs85.3 billion (EPS: Rs19.84), up 50%YoY, but slightly below market expectation of Rs20.35/share on account of lower than expected gross profits. Announcement of result was accompanied by interim dividend of Rs2.75/share, slighting higher than analysts' forecast of Rs2.5/share raising the allure of this macro-hedged play. Major facets of the results included: 1) a 30%YoY growth in net sales, where favorable movements in macro variables outweighed stagnant production flows, 2) gross profits improving by 44%YoY with gross margins rising to 64.7% as compared to 58.6% for...