lahore- The equity market kicked off the week on a bearish note (down 323 points on Monday) amid Supreme Court’s hearing of a petition seeking disqualification of the prime minister. However, attractive valuations invited fresh buying from investors following optimism over future foreign flows.

KSE 100-index ended the week 1.3 per cent WoW higher at 30,103, however average trading volumes declined by 23% WoW to 119m shares with a long weekend ahead. The outgoing week saw the book building of Saif Power, where healthy participation was seen from the general public, institutions and high net worth individuals. Other key highlights of the week were: decline in petroleum product prices by up to Rs2.95/litre, CPI inflation for Sept-2014 clocking in at 7.68%YoY, FBR tax collection rising by 14%YoY to Rs549b in 1QFY15, and government fetching Rs37bn in the T-Bills auction against the target of Rs150bn. Experts said that cotton season (Aug-Dec) FY15 has started off on a bearish note with cotton futures  hovering around USc61/lb, shedding 27% in value since the start of May 2014. The current decline in over cotton prices are due to shift in Chinese cotton policy and higher production estimates for India. The bearish cotton sentiments on the global front are influencing local pricing too which have come down to Rs5,200/maund-Rs5,500/maund despite heavy flooding in the country. As per preliminary estimates, the recent floods have affected standing cotton crop over 0.3m acres where it is estimated to have shaved off 2.0mn-2.5mn bales from the production. Resultantly, the cotton production target of the country which the government had set at 15.5m bales in FY15 will now likely clock around at 13.2mn bales, 3%YoY higher than last year’s production.

According to Pakistan Bureau of Statistics, headline inflation (CPI) for Sep 2014 clocked in at 7.68%YoY, beating the street consensus of 7.4% and 69bps higher than the reading of 6.99%YoY registered in the previous month.

This takes average inflation of 1QFY15 to reach at 7.52%, 55bps lower than 8.07% registered in the corresponding period last year. On a monthly basis, CPI nudged up by 0.36% in Sep’14 primarily due to 3.2%MoM increase in Transport segment which contributes 7.2% in CPI basket. On the flip side, flattish food prices due to second consecutive deflation in the prices of perishable food items contained overall increase.

Moving ahead, experts believe supply disruption and crop losses on account of floods along with uptick in prices due to Eid euphoria may push inflation upwards. Moreover, scheduled revision in HRI in Oct 2014 will keep inflation downward sticky. However, declining crude oil prices and resultant decrease in domestic prices of petroleum products will provide a respite to inflationary pressure. From market’s perspective, inflation announcement was largely a non-event for the investors where experts believe political stability will primarily guide the future course of KSE100 index.

Experts said that urea sales in Sep 2014 remained at 375k tons, down by 41% MoM and 26% YoY, mainly due to recent floods in the country. Urea sales of local producers may clock in at 341k tons in Sep 2014, down 29% MoM and 25% YoY.

However, on cumulative basis, 9M2014 total urea sales would remain at 4.1mn tons, down 3%. By the end of Sep 2014, industry urea inventory is estimated at 240k tons, of which nearly 70% rests with NFML (National Fertilizer Marketing Limited). In Sep 2014, urea offtake of FFC (Fauji Fertilizer) is estimated at 160k tons compared to 254k tons in Aug 2014. September sales are down 37% MoM and 28% YoY. In 9M2014, FFC sales are likely to remain at 1.9mn tons, down 4%. In Sep 2014, Engro Fertilizers urea sales may stand around 151k tons versus 168k tons in Aug 2014. On month-on-month basis, urea sales of the company are down 10% and 8% on year-on-year basis. In 9M2014, EFERT sales are estimated to remain at 1.3mn tons, up 24%. Improvement is mainly linked to higher production due to improved gas supply to the company from Mari network.