LAHORE

The overall sentiments at the bourse remained positive during the week, as the benchmark KSE-100 index closed 2.2 percent WoW higher. Activity also improved as average traded volumes (+24 percent WoW to 114 million shares/day) and value (+0.4 percent WoW to US$63m) inched up, however foreigners offloaded their positions worth a net US$4.2 million during the week. During the week under review, Prime Minister’s inauguration of CPEC’s western route and impressive provisional Dec-2015 sales numbers injected interest in cement stocks (+5.7 percent WoW).  Index heavyweight Oil & Gas stocks also recovered led by Pakistan Petroleum Limited (PPL) on news of 50 percent increase in Sui gas field’s wellhead price and recent hydrocarbon discoveries. On the other hand, Pharmas (-0.4 percent WoW) and Beverages (-0.3 percent WoW) remained the major laggards. Other major highlights of the week were (1) Indian PM Modi’s surprise visit to Pakistan, (2) Foreign exchange reserves crossing US$21 billion, (3) PM announcing Rs3/unit cut in electricity tariff for industrial consumers, (4) ECC approving 60mmcfd RLNG supply to the textile sector, (5) Reduction in diesel prices, (6) Ministry reassuring textile manufacturers about continuation of GSP Plus status, (7) Urea sales for the month of November 2015 posting a strong rebound with YoY growth clocking-in at 33 percent YoY (+216 percent MoM) and (8) K-Electric (KEL) showing interest in buying FESCO.

Experts said that range bound activity was seen at local bourse during the week, but advent of the new year resulted in the benchmark KSE-100 index closing up 2.2 percent during the week. Average daily volumes increased 24 percent to 113.7 million shares, while average daily value remained flat at Rs6.6 billion/US$62.5 million.

Tobacco led the gains on a sector level by increasing 16.6 percent over the week. Construction & Materials (Cement) and Food Producers followed, which rose 5.7 percent and 3.5 percent, respectively. On the flipside, Technology Hardware & Equipment and Household Goods declined 2.7 percent and 2.4 percent, respectively.

Foreigners were net sellers of US$3.2 million during the week. Major selling was seen in Banks and Oil & Gas (net selling of US$7.3 million and US$2.7 million, respectively) while net buying of US$3.2 million in Cement sector provided some support to overall outflow.

During the week, Prime Minister launched Voluntary Tax Compliance Scheme, which will allow taxpayers to legalize their black money by paying a nominal tax of 1 percent . The scheme has been designed for non-filers of income tax returns as well as filers who under report their income. The scheme is restricted to income from business while excluding earnings from profit on debt, dividends and property income. Further details are awaited as amnesty schemes can have implications for local markets.

According to a statement by Managing Director of Sui Southern Gas Company (SSGC), the average level of Unaccounted for Gas (UFG) for the company stands at 15 percent. It should be noted that allowed level of UFG for the company is 7.5 percent, and any loss above that level has to be absorbed by the company.

CPI inflation for the month of Dec 2015 clocked in at 3.19 percent YoY, which was lower than expectations.

In a meeting of the Economic Co-ordination Committee (ECC), withholding tax on banking transactions was maintained at 0.3 percent for non-filers until Jan 31, 2016. Moreover, the textile sector was ensured 60mmcfd RLNG for 52 days during winters, which would allow textile companies to operate during the season. This is positive for Textile sector as it has been subject to gas disruptions. Pakistan’s foreign exchange reserves crossed the US$21 billion mark last week, according to data released by the State Bank of Pakistan (SBP). Out of this, SBP has US$16.2 billion while reserves held by other banks stand at US$4.9 billion.

According to experts, the year 2015 was a tale of two halves where the KSE100 gained 7.1 percent in 1HCY15 followed by a dismal performance of -4.6 percent in 2HCY15, taking full year return to a nominal 2.1 percent (USD return: -1.8 percent ) compared to 27.2 percent in CY14 (USD return: 33 percent ). The lackluster performance can primarily be attributed to i) weakness in regional markets (see chart on left), ii) relentless foreign selling (net outflow: USD315 million) and iii) heightened regulations. The only support to the sentiments came in the form of back to back cut in interest rates (down 350bps over CY15) and improved law and order situation in metropolitan Karachi. Participation in the market improved by 18 percent to 247 million shares while, average daily traded value (ADTV) also improved in tandem to USD111 million (up 18 percent). A hefty net outflow in FIPI, mainly concentrated in Banks (USD71.2 million) and Oil & Gas (USD52.7 million), was largely absorbed by Mutual Funds (+USD171 million) and NBFCs (+USD106 million). Going forward, near term behavior of the market will remain volatile given lack of any positive developments and continued foreign selling. As a potential classification to emerging markets (MSCI EM) draws close (expected in Jun’16), experts expect the sentiment to improve in 2HCY16. Full scale initiation of CPEC projects and resultant influx of FDI will further strengthen investors’ confidence. Amongst the key sectors, they believe Cements, Steels and OMCs to remain the major out-performers.