Karachi, April 07, 2015 (PPI-OT): The recent 50bps decline in the policy rate brought down with itself the rate of return on NSS (National Saving Scheme) by 48-72bps (across STSC and RIC) to levels last witnessed at the end of FY05. That said, it is yet to be seen how this will spell out as far as attracting fresh funds through the avenue of NSS is concerned.
Recall, the SBP recently released figures for fresh funds generation through NSS, where, in 8MFY15 NSS successfully attracted additional funds in excess of PkR246.6bn (US$2.42bn) which compares favorable against PkR128.1bn (US$1.26bn) generated during the same period previous year, highlighting an increase of 93%YoY.
Upon further dissection of NSS figures it was revealed that the prime propulsion factor to the overall NSS increase came from other sources, which saw net funds flow in excess of PkR118.7bn (US$1.17bn), up 3.7x YoY. Interestingly, within other sources, SSA (Special Savings Accounts) had a share of between 55%-60% of total as depositors opted to divert their new liquidity to SSA. In theory lower return on gov’t saving schemes suggest shift of liquidity to higher yielding avenues (amongst them stocks).
However, keeping in mind developments such as: 1) the recent sharp bounce back, 2) the GoP stake sale of HBL further drying out already thin liquidity and 3) Federal Budget FY16 being around the corner, AKD Securities Limited mights not see alpha-seeking investors channelling their liquidity to the bourse despite NSS yielding lower returns.
Bahbood and SSA make 8MFY15 look good! In 8MFY15 NSS successfully attracted additional funds in excess of PkR246.6bn (US$2.42bn), which stands tall when pitted against PkR128.1bn (US$1.26bn) generated during the same period last year, showcasing an increase of 93%YoY. Upon further digging it was revealed that the aforementioned jump in fresh fund generation through NSS in 8MFY15 came due to high inflows to other sources (BSC, SSA etc), which saw net funds flow in excess of PkR118.7bnbn (US$1.17bn), up 3.7x YoY. This was followed by 77%YoY in RIC, while Prize Bonds and DSC saw their net inflows augmenting by 77%YoY and 22%YoY to PkR44.8bn (US$440.6mn) and PkR39.9bn (US$392.9mn), respectively.
Unable to replicate the feat achieved by its fellow saving schemes, fresh fund generation under SSC (Special Saving Certificate) remained muted at PkR32.5bn(US$319.4mn), inching up by 6%YoY.
Feb’15 figures clearly rattled by rate cut: That said, post 100bps reduction in the DR in Jan’15, NSS rates also got revised where AKD Securities Limited sees them coming off between 120bps to 158bps. This led to a marked decline in Feb’15 fund generation as liquidity making its way to NSS subsided by 52%MoM/47%YoY to PkR16.6bn(US$163.1mn).
However, liquidity not only failed to show up at the bourse but also exited from it as participation of individuals in Feb’15 came off by 21%MoM/23%MoM to Gross buy/sell of US$1.93bn/US$1.91bn vs. Gross buy/sell US$2.46bn/US$2.47bn witnessed during Jan’15.
Investment Perspective: With rate of return on NSS subsiding in theory the liquidity should shift to higher yielding avenues with the KSE-100 Index being amongst them. However, with market likely to remain subdued on the back of 1) The GoP stake sale of HBL further drying out already thin liquidity and 2) Federal Budget FY16 being around the corner, AKD Securities Limited might not see alpha-seeking investors channelling their liquidity to the bourse despite NSS yielding lower returns. That said, once the market successfully sees the FY16 budget through AKD Securities Limited might see increased activities. In this regard, AKD Securities Limited affirms AKD Securities Limited’s Dec-15 Index target of 37,000 pts, which provides an upside of 17% from current levels.