AKD Quotidian about — Pakistan Market: Oct’12 Review and Outlook

Karachi, November 02, 2012 (PPI-OT): The KSE-100 Index extended the bullish momentum in Oct’12, with 3%MoM gains bringing CYTD gains to a robust 40%, making Pakistan one of the best performing equity markets in the world.

According to AKD Securities, although average daily turnover in Oct’12 was recorded at 139 million shares, down 13%MoM, impetus to the bull run came from continued FIPI inflow – tagging in at US$39 million in the previous month. In terms of key developments/news flow, notable events included 1) 50bps cut in DR to 10%, 2) US State Department waiver of legal restrictions that could have blocked US$2 billion of assistance to Pakistan, 3) a downtick in domestic political noise with a resolution over the Swiss letter issue and 4) migration of KSE-100 Index onto free float weighted methodology. Bullish momentum was also aided by corporate result season and expectations of further cuts in the DR. With result season now over, market sentiment in the near- term is likely be dictated by macroeconomic developments – although the monetary easing cycle could extend to Dec’12, latent Balance of Payments concerns risk coming to the forefront with IMF repayments of about US$600 million due in Nov’12. AKD Securities retains AKD Securities’ Index target of 17,000 points with top picks being POL, FATIMA, UBL, KAPCO and PTC.

Market Drivers: The market extended its bull run in Oct’12, gaining 3%MoM. Sentiment was aided by positive developments on the political front – with continuity of assistance of Pakistan. The monetary policy stance remained supportive with a 50bps cut in the DR to 10% while corporate results continued to stay strong – out of a sample of 20 companies in AKD Securities’ Universe, 15 posted results that were either inline with or above expectation.

Sectors and Stocks: Within main sectors, top performers included Non Life Insurance (+12%MoM on prospects for capital gains) and Textile (1+11%MoM) and Cements (+6MoM), both on strong results amidst monetary easing. Laggards included Fixed Line Telecom (-13%MoM with uncertainty over ICH continuity) and Automobiles and Parts (-6%MoM on strong competition from imported variants). Within AKD Securities’ Universe, top performing stocks were NCL (+35%MoM), SNGP and FFBL while laggards included ENGRO (-14%MoM on gas supply concerns), PTC (-13%MoM on negative ICH news flows) and PSMC (-12%MoM following a surprise Loss in 3QCY12).

Volume and Liquidity: Average daily turnover in Oct’12 clocked in at 139 million shares, down 13%MOM. That said, FIPI continued to be strong – registering at a strong US$39 million in the month under review. A key event for the market was the KSE-100’s migration to free-float weighted methodology from Oct 15-12. Since then, the Index gained another 163 points until month end. In this regard, AKD Securities estimates that Banks added 77 points to the Index while, despite a reduction in weight, Oil and Gas contributed 71 points.

Outlook: With result season now over, investor attention is likely to be dedicated by political noise and macroeconomic developments. Regarding the latter, expectations of further monetary easing could keep leveraged sectors (Textiles and Cements in particular) buoyant in the near-term. While cognizant of latent Balance of Payments risks, AKD Securities retains AKD Securities’ Index target 17,000 points with top picks being POL, FATIMA, UBL, KAPCO and PTC. (NCL downgraded to Accumulate following exceptional returns of 48% since AKD Securities’ Buy call on Sep 24’12).

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