Stock Review - Bullish mood persist; upcoming budget, bonds auction and talks with imf in focus.

Byline: S. Kamal Hayder Kazmi

The benchmark Index of Pakistan Stock exchange (PSX) closed in the green for the week ended 18th January 2019. It was the third consecutive week the Index posted gain of 258 points and closed at 39,307 level. Positive sentiments were driven by the possibility of third budget of FY19, which is expected to reduce/eliminate advance tax of 0.2% on brokers, rationalize group taxation system, ensure ease of doing business and reduce input cost for export oriented sectors.

With the possibility of GIDC Resolution (50% waiver) on the cards, the fertilizer sector is expected to benefit the most. Resultantly, fertilizer was the best performing sector of the week followed by EandP and tobacco sectors. Selling by foreigners for the week spiked to US$9.42 million as compared to net buying of US$0.6 million a week ago. Uncertainties kept investors' sentiments subdued, plunging average daily turnover to less than 118 million shares, down 15%WoW.

Additional news flows driving the market included: 1) Fitch Solutions stated that the Government of Pakistan continues to have little appetite for austerity and painful and necessary economic reforms, which would prolong the current up cycle for Bank advances, 2) SBP reserves fell to US$6.9 billion - their lowest level since April 11, 2014 when they hit a trough of $4.984 billion, 3) current account deficit (CAD) slipped by 4.4%YoY to US$7.98 billion and 4) Exxon Mobil representatives apprised Petroleum Minister on the pace of ongoing exploration activity in ultra-deep waters at the offshore Indus G-Block, about 230 kilometers off Karachi coast.

Gainers of the week included: FFBL, PSMC, NCL and EFOODS, whereas laggard were: CHCC, POL, PIOC and DGKC. Volume leaders were: KEL, PAEL, BOP and TRG. Developments on negotiations with the IMF are expected to keep market under pressure next week. The government's much-awaited mini-budget (second since coming to power), and Prime Minister Khan's visit to Qatar to secure concessions along the lines of those secured from UAE and Saudi Arabia could push sentiment either way.

Upcoming Pakistan Investment Bonds (PIBs) auction on 23rd January 2018 will have strong implications for the local equity and bond markets. In the last PIB auction held on 26th December 2018 a small amount of Rs22.5 billion was accepted with cut off for 3, 5 and 10 years at 12.2%, 12.7% and 13.1%, respectively. Moreover, these cut offs were up 472bps, 345bps and 442bps as...