Pakistan Economy: We expect Feb’16 CPI to clock in at 4.1%YoY compared to 3.3%YoY and 3.2%YoY in Jan’16 and Feb’15, respectively. On a sequential basis, inflationary pressure is expected to recede by 0.2%MoM compared to 7MFY16 average of +0.2%MoM. The muted trend in CPI can be attributed to i) continued deflation in food basket by ~0.4%MoM (weight: 34.8%) and ii) an expected ~3%MoM attrition in transport basket. During Feb‐16, 6%MoM‐7%MoM downward revision in petrol and diesel prices will likely form the basis for a downtick in transport basket.

Cumulatively, average CPI in 8MFY16 will remain contained at 2.5%YoY compared to 5.5%YoY in the corresponding period last year. Sharp decline in the price of global commodities and high base factor remained the major reasons behind soft inflationary pressure during 8MFY16. For full year FY16, we foresee CPI to remain in the vicinity of 2.8%‐3.0%. We expect State Bank of Pakistan (SBP) to keep the interest rate unchanged at current level (policy rate: 6.0%) throughout CY16 where we expect CPI to average at 3.5%‐4.0%. Rebound in oil prices leading to probable deterioration in external account and uptick in CPI will remain a risk to our base case policy rate assumption of 6.0% in CY16. Given the hpw possible conclusion of monetary easing phase in Pakistan, the upcoming CPI number will likely remain a non‐event for the market. We continue to recommend stocks with attractive valuations and strong fundamental outlook with PSO, KOHC, FCCL, DGKC, UBL, HBL and OGDC being our top picks.

Feb’16 CPI expected at 4.1%YoY: We expect inflation in the country to inch above 4.0% mark for the first time in past 13 months to clock in at 4.1% in Feb’16 compared to Jan’16 and 7MFY16 average of 3.3% and 2.3%, respectively. However, MoM trend in CPI will remain muted at  ‐0.2%MoM compared to +0.2%MoM in both Jan’16 and 7MFY16 average. The dull trend in CPI can be attributed to a 0.4%MoM and 3%MoM decline in food and transport baskets (cumulative weight: 42%), respectively. The notable decline in transport basket will likely be due to 6%‐7% downtick in petrol and diesel prices in the country. Thus, the uptick in CPI change will merely be a factor of low base affect (Feb’15 MoM CPI:  ‐0.9%) rather than any material uptick in prices. Cumulatively, CPI during 8MFY16 is expected to average at 2.5%YoY compared to 5.5%YoY in the corresponding period last year.

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By: BMA Capital Management Limited