Equity Analysis / Pakistan

Pakistan Market: KSE-100 – Staging a bounce back

  • The KSE-100 bounced back in April 2020, rising 17% mom, after a sharp 23% decline in March
  • Average daily traded value came down by 11% mom to US$50mn; foreign selling narrowed to US$69m vs. US$85mn in Mar'20
  • International oil prices (Brent) recovered 11% mom while the PKR appreciated 4% against the US$

The KSE-100 bounced back in April 2020, rising 17% mom, after a sharp 23% decline in March. The rally was led by (i) government decision to ease off lockdown conditions for certain industries, (ii) an emergency 200bps cut in the policy rate, bringing it to 9.0%, and (iii) a massive 62% slump yoy in global oil prices. MSCI World/EM indices were up 11.0%/ 9.0% mom.

Market activity, however, came down by 11% mom to US$50mn average daily traded value. Foreign selling narrowed to US$69mn (vs US$85mn in March) and was concentrated in Banks and E&Ps. International oil prices (Brent) recovered 11% mom while the PKR appreciated 4% against the US$.

With a rise in Covid-19 testing, total confirmed cases in Pakistan has risen to 20,130 with the mortality rate remaining at 2%. A flattening curve of cases and resultant spur in economic activity will determine future market direction. Corporate profitability is beginning to show signs of stress with higher-than-expected losses from cyclical sectors and higher loan provisioning observed in banks. 

Major events in April 2020

Construction and export industries allowed to reopen: Following much outcry over industry closure, PM Imran Khan allowed the construction and other essential industries to resume operations in a phased manner; however, the Sindh province maintained strict lockdown conditions. In concert with earlier announced stimulus package and multiple interest rate cuts, this helped allay investor concerns on the economic fallout of an extended lockdown. Total number of reported Covid-19 cases rose 10.6x mom to 20,156 with 459 deaths. However, this is also due to higher number of testing. 

SBP cuts interest rates by another 200bps: The State Bank of Pakistan (SBP), in an emergency meeting, cut the policy rate by another 200bps (425bps cumulatively) to 9.0% (third cut since March MPS). SBP partly reasoned it with GDP growth estimates of -1.5%/2.0% in FY20/21f (same as that of IMF) and an improved inflationary outlook. 

New IMF programme of US$1.4bn: The Rapid Financing Instrument (RFI) programme aims to support Pakistan against any balance-of-payment fallout while dealing with the pandemic. Importantly, IMF has relaxed the contingencies of the existing EFF program, but has advocated returning to reforms once the outbreak is adequately contained. The RFI programme is in addition to other multilateral assistance and a cumulative US$1.7bn debt relief by G20 countries in the shape of one-year suspension of repayments to bilateral creditors. 


In the ongoing March result season, overall corporate profitability has shown signs of stress, which will likely worsen in the June results. That said, with multiple relief measures announced by the Government for industries and other borrowers, market perception of economic risks should improve in the coming months. With several industries beginning to reopen both domestically and globally, economic activity should continue to rebound (albeit more strongly after Ramadan). 

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Macro Analysis / Pakistan

Pakistan's KSE-100 in May: Muted performance despite positive triggers

  • The KSE-100 fell 0.5% in May 2020 taking CY20td decline to 17%. Market ignored the lifting of lockdown and MPS.
  • Key concerns for the market are: an accelerated buildup of Covid-19 cases and broadening twin deficits.
  • Our top picks are: ENGRO, OGDC, INDU, UBL and MTL.
Saad Ali @
Intermarket Securities
1 June 2020

The KSE-100 was flat in May 2020 (down 0.5% mom), taking CY20td decline to 17%. There were some positive triggers, including the partial lifting of lockdown conditions by the government and the SBP cutting the policy rate further by 100bps to 8%. However, both failed to lift market sentiment.

Market activity fell 9% mom to c.US$46mn average daily traded value. FIPI outflow (US$40mn in May) continued for the fourth consecutive month since the onset of Covid-19 pandemic. International oil prices rose c.35% mom (as markets cheered easing of lockdowns globally); PKR/USD depreciated 2%to c.163.

With the dislocation in Pakistan being progressively eased off, major concerns for the market are an accelerated rate of infections (which can reverse the easing) and the FY21 Budget announcement in June. News-flow on the latter have been mixed; while the MoF is proposing tax reliefs despite swelling fiscal deficit. 

Major events during May 2020

Lifting of lockdown conditions: In line with several countries, Pakistan government eased lockdowns effective 11 May (ahead of Eid), overweighing concerns on the economy (and the plight of poor) despite a still-rising trend of infections (which have accelerated ever since). In place since 24 March, the dislocations led to zero sales of cars in April, exports plummeting 54% yoy, disruption in Urea supplies, and c.19% yoy lower cement dispatches, among others. We do not rule out the risk of government reinstating stricter lockdown measures, because of the present pace of infections. 

SBP cuts interest rates by 100bps: This was the fourth cut in the policy rate (now at 8%) since mid-March, taking cumulative easing to 525bps. The government simultaneously approved a PKR50bn stimulus package for Agriculture, which entails fertilizer subsidies. The Ministry of Finance is reportedly mulling tax reliefs for the upcoming FY21 Budget announcement (due 12 June), while the fiscal deficit for FY20 is estimated to cross 9%. The IMF, however, has suggested more tax measures.

Local pharmaceutical companies to supply Covid-19 medications: Feroz Laboratories (FEROZ) has signed an agreement with Gilead Sciences for local manufacturing of its drug Remdesivir, which has proved efficacious in treating Covid-19 patients (by the US FDA). Searle Company (SEARL) has separately agreed (exclusively) with a Bangladeshi company, Beximco Pharma, to supply the same drug in Pakistan. With many global pharma companies (some also present in Pakistan) working on a vaccine, we think market interest in the sector will remain strong in the near term (the sector rallied c.7% in May). 

Future outlook

Pakistan Market staged a flattish performance in May despite two major positive triggers – the easing of lockdown and MPS. The March results season (earnings down c.7% yoy for the companies we track) has dampened sentiment as well. The future market direction will be shaped by any surprises in the upcoming Budget announcement, where higher-than-expected PSDP allocation or notable tax reductions can be key catalysts (however, low likelihood). Major concerns remain the accelerated buildup of Covid-19 cases in Pakistan and the broadening of twin deficits, which, if not tamed, threaten to keep economic activity below par for longer, in our view. 

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