PakStox Outlook

Refineries are undergoing a period of significant change, driven by evolving product standards, technological advancements, and government policies related to investment, upgrades, and pricing. The current operating environment for refineries is marked by earnings volatility. Previously, ATRL refinery operations had their earnings buffered by its Lube business, but this is no longer the case. However, the nomenclature persists, and ATRL now refers to its dividend income as non-refinery income. In this group mainly comprising of POL, NRL and APL their is a substantial inter-corporate lending and borrowing that at times turns their financial charges into financial income. ATRL has exposure in all three major PSX indices namely KSE100 Index, KSE30 and Shariah-compliant KMI30.  The weighting of ATRL in KMI30 is double than its weight in KSE100 Index.  Click the link below to see quarterly financials of ATRL with key valuation parameters. S ee ATRL SnapShot

As the KSE100 Index rose by 1,000 points today, Foreign Corporates bought a net amount of over $3 million, surpassing their recent activity at the PSX. Interestingly, Overseas Pakistanis were net sellers to a significant degree today, exceeding $2.46 million. Typically, their activity at the PSX is not very significant. On a weekly basis, Foreign Corporates' net buying was close to $8 million, as the KSE100 Index declined by 105 points.  In 'Local Investors' Mutual Funds were net buyers today, but the amount was relatively small at $0.4 million. In contrast, individuals were major sellers, with net sales of $3 million. The activity of Mutual Funds is most significant when a clear trend emerges, which has not yet occurred. This week, they have sold more than in any other week of this year, with net sales close to $9 million. Another major seller this week was 'companies,' with net sales close to $8 million, nearly matching the sales by mutual funds. The most signific...

A few days ago, someone asked me about the consistent rise of the stock market despite the obvious political, economic, and public finance issues, as well as the high interest rate and high exchange rate, which have led to demand destruction across the board. Additionally, we have a political system where it is easy to topple the center, but hard to maintain control afterward. The political gridlock ensures that things stand still and decay instead of creating an environment of political dialogue where the needed structural changes could be addressed. How is it that in an environment like this, foreign investors are pouring money into Pakistan and the market has risen to record highs while local investors are net sellers? My short answer is: money on one side and arguments on both. Leaving aside the fact that foreign investors haven't really poured in a significant amount, having made net purchases of just $150 million in the last year while still being net sellers of over $1.5 bil...

A high policy rate is not solely about getting inflation back to a certain level, and the solution does not lie solely with the central bank. The high level of inflation that we face, reflects issues with our public finances rather than external factors. International commodity prices have been declining for the past year, yet we have not seen a corresponding decrease in domestic inflation. Even if international oil prices fall to a level that provides relief from inflation and external obligations, it will not address the structural issues that have driven interest rates to their current level. In fact, during the 1990s, when oil prices were at record lows, we were still experiencing severe balance of payments issues.   Furthermore, our inflation isn't solely due to "supply chain constraints" – a buzzword for presentations and policy notes, alongside other terms such as "measured approach" and "V-shaped recovery." Limited by current economic jargon, t...

There's a certain hint of optimism that the Monetary Policy Committee might reduce the policy rate at its upcoming meeting on June 10th.  However, such hopes have been dashed before, as in April's meeting, when the State Bank of Pakistan kept the rate at a record high of 22% for the seventh consecutive time. It has been almost a year now since we reached this level, with rates first being raised in June last year. Several factors are rekindling hopes for a rate cut: a slight decline in the Karachi Interbank Offered Rate (KIBOR), T-bills rates, recent reductions in petrol prices, a slower pace of price increases, and a current account surplus. But it's crucial to recognize that a reduction based solely on a few positive indicators might be shortsighted. It could create the false impression that the real underlying causes of our high rates have been addressed. So far, I haven't observed any structural changes in the data flow indicating that the rates should come down.  C...

Pakistan is among the highest recipients of IMF loans. However, it is important to note that Pakistan's IMF debt as a percentage of its GDP is the lowest among comparable countries. The top three recipients all have larger economies than Pakistan and a debt-to-GDP ratio of more than 3%, whereas Pakistan's ratio is less than 2%. Debt-to-GDP ratio is a measure used to assess a country's ability to pay back its debt relative to the size of its economy. A lower ratio generally indicates that a country is managing its debt more effectively compared to its economic output. For a broader meaningful comparison, it is essential to exclude Argentina and Ukraine, as they are special cases due to their unique economic and political circumstances. Additionally, smaller African countries should be left out of the comparison because their economic contexts differ significantly. ( IMF data ) This leaves Egypt as the most relevant country for comparison. Egypt, like Pakistan, has a geopolit...

Less than $150 million of net buying by 'foreign corporates' since the middle of last year has pushed the KSE100 Index to a record high, rising around 70% and breaching the 75,000 level. Though the valuations are still attractive, consider the fact that if this modest inflow has pushed the market this high, imagine where the market would be if even half of the $1.5 billion outflow since 2018 returned to the PSX. Note that within the five-year period from 2018 to the end of 2022, foreigners withdrew $1.5 billion from the Pakistani market. This highlights the shallowness and limited size of the Pakistani market. Local fund managers face a challenging environment, grappling with foreign capital flows on the one hand and the realities of Pakistan's political and economic situation on the other. In the months before foreigners entered the PSX, specifically before the middle of last year, the market touched absurdly low levels due to foreign outflows and high interest rates, with...