AKD Quotidian about — Pakistan Market: May’13 Review and Outlook

Karachi, June 03, 2013 (PPI-OT): The benchmark KSE-100 Index gained a robust 15% in May’13 to close at 21,823 points, bringing CYI3TD gains to 29%.

According to AKD Securities in this regard, bullish sentiment perpetuated by the smooth democratic transfer of power continued in the aftermath of the May 1113 General Elections, with strong FPI inflow (US$27tmn in May’13) providing impetus to the rally. Within main board sectors, top gainers were Fixed Line Telecom (+22%M0M), Electricity (+20%M0M) as well as Index heavyweights Oil and Gas (+19%M0M) and Banks (+19%M0M).

On the flipside, notable underperformers included Food Producers (+2%M0M), Textiles (+4%MOM) and Chemicals (+5%M0M). Going forward, despite the market’s recent gains, the Index still trades at an attractive FY/14F PIE of 7.5x (33% discount to the MSCI Asia Pacific Index), DIV of 7.3% and market cap/GDP ratio of 22% vs. an all-time high of 46%.

Together with continued FPI inflow, this should continue to drive further market upside where AKD Securities retains a preference for ENGRO, PSO, PTC, DGKC, UBL, PSMC, EPCL and LOTCHEM, among others. In terms of risks, AKD Securities flags the Balance of Payments position as the main cause of concern where the upcoming monetary policy should provide some clarity on outlook.

May’13 Review: The KSE-100 Index gained 15% in May13, bringing CY13TD gains to 29% and ensuring Pakistan remains one of the top performing markets in the world. In this regard, bullish sentiment peipetuated by the sir iooth democratic transfer of power continued in the aftermath of the May 1113 General Elections with anticipated priority focus on addressing the power deficit bolstering stocks in the energy chain.

Furthermore, market sentiment was buoyed by continued soft CPI, leading to some build-up in expectation regarding a possible continuation in the monetary easing cycle. FPI inflow remained the key driver again, with May’13 net inflow of US$271mn (albeit containing one-off flows due to ULEVER buyback) bringing CY13TD net inflow to US$370mn. At the same tune, average daily volumes and value climbed by 86%MoM and 59%MoM to 361mn shares and US$122mn, respectively.

Sectors and Stocks: Within main board sectors, top gainers in May’13 were Fixed Line Telecom (+22%M0M after the Sindh High Court suspended the CCP’s order on ICH), Electricity (+20%M0M on anticipated resolution to circular debt), Oil and Gas (+19%MOM) and Banks (+19%MoM). On the flipside, notable underperformers included Food Producers (+2%MOM), Textiles (+4%MoM on slower yarn demand from China and concerns over taxation front) and Chemicals (+5%MOM).

Within the AKD Universe, the top gainers in May’13 included P50 (+46%MQM), SSGC (+35%MoM), SNGP (+35%MOM), EPCL (+25%MOM) and PTC (+23%MoM) while laggards included AKBL (-11%MoM), ULEVER (unchanged at buyback price of PkR15,000fshare), HCAR (+2%MQM), FATIMA (+2%MoM) and FFC (+4%MoM)

Outlook: Even after gaining 29%CY13TD, the market still trades at an attractive FY/14F PIE of 7.Sx (33% discount to the MSCI Asia Pacific Index), Dry’ of 7.3% and market cap/GDP ratio of 22% vs. an all-time high of 46%. Together with continued FPI inflow, this should continue to drive further market upside where AKD Securities sees the Index crossing 23,000 points comfortably.

AKD Securities retains a preference for ENGRO, PSO, PTC, DGKC, UBL, PSMC, EPCL and LOTCHEM, among others. In terms of risks, AKD Securities flags the Balance of Payments position as the main cause of concern with the upcoming monetary policy and the new governments first 100 days in charge likely to shed clarity on the timing of re-entering an IMF program.

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