JS Securities Limited – Weekly Review

Karachi, February 09, 2018 (PPI-OT): Local equities plunge as US stock fall most in more than six years

The local equities plunged after US stocks fell most in more than six years, as the benchmark KSE-100 index declined by over 800pts (~2%) during the early trades on Tuesday. The market recovered somewhat, however it failed to break the overall bearish trend with foreigners turning in net selling of US$8.5mn during the week. The local Mutual Funds were also net sellers of US$5.0mn. Overall, the KSE-100 index closed the week 1.1% WoW lower at 43,809, with average traded value edging lower by 3% WoW to US$87mn/day.

The bourse also witnessed the book building of AGP Limited this week, which was subscribed by ~1.6x at a strike price of Rs80.0. The key sectors leading the decline were (1) Cements (down 3.7% WoW) – where in spite of strong Jan-2018 local dispatches (+37% YoY), rumours of break in pricing cartel and earnings announcement by Cherat Cement (CHCC, down 9% WoW) dampened investors’ sentiments and (2) Oil and Gas Exploration (down 2.2% WoW) – as international oil prices came off by ~9% during the week. The Steel sector (down 2.7% WoW) too came under selling pressure as suspension of regulatory duties confused investors.

The overall sentiments continue to be affected by the gloomy external account outlook, as foreign exchange reserves further declined by US$172mn to US$19.18bn, as Trade Deficit worsened by 24% YoY and 24% MoM to US$3.6bn in Jan-2018, as per the data released by PBS. That said, relationship with the US somewhat eased off as the US State Department said that US can potential lift suspension of aid to Pakistan given necessary steps are taken, while the Pakistan’s Minster of Interior also hinted that US is unlikely to stop economic aid to the country.

Other key highlights of the week were: (1) China agreeing to accommodate Pakistan’s concerns on FTA, (2) Government likely to present budget on May 12, (3) Cotton production increasing by 7.5% YoY, (4) Government likely to announce incentive package for the IT sector (up 1.0% WoW), (5) Steel melting industry opposing tax breaks for a Chinese firm and (6) PM saying a separate tariff for textile sector (up 2.2% WoW) will be announced soon.

Incentive package for IT sector in the pipeline

According to news reports, the government is preparing an incentive package for the IT sector in the upcoming budget, where the Ministry of Information Technology and Telecommunication (MoITT) has proposed extension of zero- rated income tax to IT exports, grant of industry status, removal of 2-8% minimum tax on services, and abolition of customs duty and sales tax on import of specific items.

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