AKD Quotidian about — Elections 2013: Experience trumps calls for sweeping change

Karachi, May 13, 2013 (PPI-OT): Buoyed by strong anti-incumbency sentiment and unification of the “Muslim League” vote bank, PML-N thwarted the PTI threat in Punjab to emerge as the runaway leader in the National Assembly with 125 seats.

According to AKD Securities Pakistan’s vote bank has been galvanized by the media which now provides an effective system of checks and balances to form public opinion in AKD Securities views. PML-N is now likely to join with smaller parties/independents and lead government nomination with Mian Nawaz Sharif poised to become Prime Minister for the third time.

The incoming government faces a weakening Balance of Payments position and an acute energy deficit alongside a need to unify the political landscape considering PPP and PTI, openly hostile to PML-N in the run-up to elections, will likely lead government formation in Sindh and Khyber Pakhtunkhwa. That said, the statesman-like approach adopted by the PML-N Chief in his victory speech is a key building block which could extend the ongoing market rally where AKD Securities revised Dec’13 Index target is 21.000 points. In this regard, while an IMF program may be unavoidable in the near-term, the government wilt also concentrate on resolving the energy crisis, reviving privatization and big-ticket infrastructure projects, implying positives for Oil and Gas, Power, Cement, Fertilizer and Textiles.

Third time’s a charm: With 125 seats out of the 272 directly contested NA seats, PML-N is in a strong position to lead government formation at the center together with another term in Pun]ab while PPP/MQM will likely come back in Sindh and PTI will form the government n Khyber Pakhtunkhwa (unless PML- N weaves together a coalition). Pre-election rhetoric notwithstanding, this illustrates the need for a reconciliatory tone towards other major parties where the statesman-like approach adopted by the PML-N Chief in his victory speech is a key building block, in AKD Securities views.

The PML-N recipe: Going by PML-N’s previous tenures and its election manifesto, AKD Securities details the party’s likely policy in three key areas:

U Foreign policy: While PML-N will likely retain its center-right stance and dose ties with the GCC, recent media interviews suggest the party may seek improved ties with US, Afghanistan and India. Pressing points include resolution to the US drone strikes issue and need to navigate ties with Pakistan’s military, within the backdrop of General (retd) Musharraf’s arrest.

Economy: Beyond unavoidable re-entry into an IMF program to stabilize the Balance of Payments position, PML-N is likely to pursue an agenda of privatization, restructuring of SOEs, large-scale infrastructure development projects and increased regional trade, particularly with India. Greater aid/oil facilities from GCC countries may also be on the cards.

Energy crisis: Resolving the circular debt issue and curbing load-shedding will likely be a priority although maintaining a balance between industrial and domestic consumers poses a challenge. PML-N’s stated policy will be to privatize DISCOs/GENCOs, place a ban on CNG stations, further incentivize oil and gas exploration, import LNG and replace FO boilers with coal.

Investment perspective: AKD Securities believes a resounding mandate for PML-N alongside no major law and order incidents will likely extend the KSE’s rally where AKD Securities revised Dec13 target is 21,000 points. AKD Securities sees positives for Oil and Gas (OGDC and PSO), Power (HUBO and KARCO), Cement (LUCK and DGKC), Fertilizer (ENGRO) and Textiles (NML and NCL) while AKD Securities also selectively like Telecoms (PTC) and Banks (UBL and BAFL). Key risk emerges from any move to alter the incumbent capital gains tax regime and any escalation in allegations of electoral rigging.

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