Pakistan Market: Mar’15 remained a lackluster month for the market as KSE-100 index shed ~4,700 points (down 14%) to bottom at 28,927 points before recovering 1,307points (up 5%) during the last trading day, thus depicting biggest FYTD monthly decline of 10% in Mar’15. With the end of 2QFY15 result season, participation in the market also remained weak where ADT clocked in at 167mn shares (down 31%MoM) while ADTV also weakened by 34%MoM to USD91mn. The lackluster trend in the market can be primarily attributed to i) considerable foreign selling (Net FIPI –ve USD71.4mn), ii) expectations of a gas price hike announcement in Apr’15 (-ve for Textiles, Chemicals and Cements) and iii) political tensions in the main metropolitan city of Karachi. The aforementioned negative developments overshadowed positive developments including i) a 50bps DR cut in Mar’15, ii) improvement in the country’s credit rating outlook to ‘positive’ by Moody’s and iii) arrival of the first LNG shipment into the country.
On the foreign investor side, the hefty sell-off can be attributed to i) divestment by a foreign fund (Everest Capital as per media reports), ii) amendments in the pattern of tax deduction in foreign investors’ account and iii) negative news/rumors in some major sectors. Going forward, we believe the direction of the market will be dictated by i) 3QFY15 result announcements (+ve for Cements, Textiles, Autos), ii) strong fundamentals (CY15 earnings growth 20% – excluding Oil & and Gas) and iii) improving macros. The economic outlook remains upbeat on i) narrowing CAD on depressed oil prices, ii) improvement in gas supply (addition of LNG) and iii) continued strengthening in forex reserves amid receipt of IMF tranche (USD501mn) and HBL SPO proceeds. We believe the investment theme should be premised on stocks with high D/Ys and steady fundamentals. We flag FCCL, POL, UBL, MLCF, and PSO as our preferred plays in the market.