JS Securities Limited – KSE fails to gain traction in spite of encouraging S and P and Moody’s review

Karachi, May 08, 2015 (PPI-OT): In spite of S and P raising outlook on Pakistan to positive from stable and Moody’s flagging Pakistan’s improving external liquidity position in its latest report, the equity markets failed to gain traction during the outgoing week. This was largely due to (1) one notch higher political uncertainty after the disqualification of the Railways Minster and (2) news flows suggesting a tax-heavy upcoming Federal Budget.

However, the Oil and Gas sector attracted investors’ interest on hydrocarbon discoveries and recovery in international crude oil prices. Hence, the benchmark KSE-100 index closed 0.6% WoW down at 33,530 with trading activity dropping by 26% WoW to 187mn shares/day. However, foreigners remained net buyers worth US$12mn vs. net buying of US$21mn in the preceding week.

Other key highlights of the week were: (1) Pakistan and IMF starting talks on the seventh review under the EFF, (2) Pakistan likely to issue US$1bn in Eurobonds in FY16, (3) Cotton arrivals clocking in 11% YoY higher at 14.87mn tons in FY15, (4) Engro’s Elengy Terminal failing to qualify for Pakistan’s second LNG terminal and (5) Ministry of Finance approving merger of KASB Bank into Bank Islami.

S and P raises Pakistan’s outlook to positive

Standard and Poor’s (S and P) raised Pakistan’s credit rating outlook to positive from stable, as lower energy costs and an IMF loan boost growth and improve finances. The positive outlook reflects expectations of Pakistan’s improved economic growth prospects, fiscal and external performance, and the supportive relationship of external donors. S and P affirmed the country’s B- rating and raised the 2015-2017 average growth projection to 4.6% from 3.8%.

Apr 2015 CPI drops to 2.1% YoY

CPI inflation for April 2015 clocked in at 2.1% YoY vis-à-vis 2.5% YoY recorded last month. This low CPI Inflation was mainly attributed to (1) lower fuel prices and (2) decline in prices of Perishable Food items. Overall in 10MFY15, CPI inflation stands at a modest 4.8% YoY versus 8.7% YoY in 10MFY14.

Cement: Sales up 3.9% YoY in 10MFY15

Overall cement sales in Apr 2015 clocked in 2.6% YoY and 9.7% MoM higher at 3.29mn tons. On a YoY basis, 4.6% YoY higher local offtake led overall demand growth in Apr 2015; while on a MoM basis exports picked up by 44% on the back of improving dynamics for manufacturers-based in North of Pakistan. In 10MFY15, overall cement sales clocked in 3.9% YoY higher at 29.08mn tons where local sales jumped by 8.0% YoY while exports declined by 9.1% YoY.

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