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

Karachi, December 03, 2012 (PPI-OT): The market continued to make new highs last month with the KSE-100 Index gaining 42%MoM to close at 16,574 points with average daily volumes depicting an increase of 66% to 230mn shares.

According to AKD Securities, in this regard, President Obama’s reelection implied status quo on US-Pakistan relations including stance on aid while a soft CPI reading of 7.7%YoY for Oct’12 opened prospects for further monetary easing. These countered concerns on the currency where a -US$400mn IMF repayment was made. Important sector-specific developments included 1) reduction in imported used car age to 3yrs and 2) expectations that the savings a/c floor for banks could be reduced. The market has now gained 46%CYTD with volumes now concentrated in third tier stocks. While the broader Index appears well on track to cross the 17,000 points mark, further upside could be unlocked by still-attractive valuations (forward PIE: 6.9x) provided nascent Balance on Payment risks do not come to the forefront.

Market Drivers: The KSE-100 Index gained 4.2%MoM in Nov12 with President Obamas reelection implying status quo on US-Pakistan relations including stance on aid while a soft CPI reading of 7.7%YoY for Oct’12 opened prospects for further monetary easing. Market upside was also driven by attractive valuations (forward PIE: 6.9x) amidst a general rebound in regional equity markets on improved global economic data. These factors served to counter a weakening Balance of Payments profile particularly after an IMF repayment of -US$400mn was made.

Sectors & Stocks: Within main sectors, the top gainers included Textiles (+14%MoM on confluence of positive factors), Telecoms (+8%MoM with ICH still underway) and Autos (+7%MoM on reduction in age limit of imported cars). Underperforming sectors included Chemicals (flat on continuing gas supply concerns), Oil & Gas (+3%MoM) and Electricity (+3%MoM). Within Arif Habib Limited’s Universe, top performing stocks were EFOODS (+24%MoM), HCAR (+21%MoM) and NCL (+20%MoM) while underperformers included FFBL (-9%MoM), HUBC (-5%MoM) and FFC (-2%MoM).

Volumes & Liquidity: Average daily turnover in Nov12 registered at 230mn shares, up a robust 66%MoM with investors increasingly looking to third-tier stocks that had been relative laggards. Net FF1 clocked in at US$35mn (down 10°/0M0M) with market activity dominated by local companies and individuals. Top volume leaders in Nov12 included FCCL, MLCF, JSCL, ANL and DKGC.

Outlook: The key near-term trigger for the market is the upcoming Monetary Policy Statement where AKD Securities expects the SBP to reduce the DR by 50bps to 9.5%. In Arif Habib Limited’s view, the MPS could potentially be accompanied by a reduction in the savings a/c floor for banks where a 1% reduction to 5% would increase EPS estimates in the 8%-1O% range. In addition to Banks, AKD Securities believes the hitherto underperforming Fertilizer sector could also be in for a rebound across the next few months. While the broader Index appears well on track to cross the 17,000 points mark, further upside could be unlocked by still- attractive valuations (forward PIE: 6.9x) provided nascent Balance on Payment risks do not come to the forefront.