PakStox Outlook

This past week was a whirlwind in the Pakistani market! A policy rate reduction, the presentation of the federal budget, a resurgence in international oil prices, and the PSX's impressive turnaround on a bad budget. The KSE 100 Index extended its losing streak from last week into the first three trading sessions of this week. By Wednesday, it had shed over 3,000 points, remaining in the red zone for eight consecutive trading sessions since the beginning of the month. The market's weakness stemmed from expectations of higher taxation in the upcoming budget, particularly an increase in the capital gains tax. Additionally, the market had reached record highs by the end of May, prompting participants to adopt a selling stance. This 'sell' sentiment was so strong that even the reduction in the policy rate, announced on Monday evening, was insufficient to reverse the market's direction. Consequently, the KSE100 Index lost an additional 450 points in the two trading sessio...

Despite positive market reaction on expectations of more money to flow towards it the proposals of federal budget 2024-25 were a terrible poor show. Not an iota of thought went into making this budget. It shows complete submission to dictates and an absolute freeze in policymaking. There's no effort made, nor even a mention of structural change. There isn't even a word on fostering an environment for growth, let alone addressing the biggest problem of circular debt. The target of revenue generation from additional taxes, a whopping 38% higher than the previous year's unmet target, is sheer folly. Increasing taxes will not increase revenue. Only a functioning and growing economy can generate more revenue. The whole focus of the budget proposals is to increase tax rates wherever possible, without any effort to spur economic activity that is already reeling from high interest rates, a high exchange rate, and a politically unstable environment. The biggest joke is the introduct...

NML is trading at a low P/E ratio below 4. And its price to book is at absurd level. Its book value per share is around four times of its market price.  In addition to core earnings from its vertically integrated textile operations, Nishat Mills also benefits from substantial investment income generated by its portfolio of listed and unlisted securities. One of its most notable holdings is DG Khan Cement (DGKC), in which NML holds over 31% of shares. The resurgence in cement demand and rising profitability in the sector are expected to boost DGKC's market price, increasing the value of NML's investment portfolio. Furthermore, NML has a low weighting in major PSX indices. It has a small weight in the KSE100 Index and is not currently included in the KSE30. However, it has recently been added to the KMI30 index, that would be effective from June 14, 2024. That should boost the stock’s demand for inclusion in shariah compliant portfolios. NML has underperformed the market rally. C...

At last, the SBP has cut the policy rate by 150 bps to 20.5% after maintaining it at 22% for seven MPC meetings since June last year. This should exert downward pressure on inflation, provided that a resurgence in demand does not put pressure on the exchange rate. The KIBOR had been inching down for weeks and fell below 21% last week. The stock market should also react positively to this. The statement of the MPC notes….”At the same time, the MPC viewed some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments.” In our opinion, this rate cut needs to be accompanied by other structural changes at the public finance level. Otherwise, except for some possible external factors such as a decline in international oil prices, there will be no support at the national level for a sustained decline in interest rates. The policy rate remaining above 20% primarily reflects a breakdown in the manage...

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...