Remembering the day India attacked Pakistan

Pakistanis will celebrate 6^th September with great fervor, the day they repelled the attack by a military might, ten-times the size of their army. They just can’t forget 6^th September 1965, the day India attacked their homeland. Despite signing Tashkent agreement India continued its aggression against Pakistan that culminated at turning its eastern part into Bangladesh in1971. The war mania continues, the only difference is that there is no military assault but RAW agents are operating through nock and corner of Pakistan.

Many Pakistanis believe very strongly that all the RAW agents have not come from India. A question arises, if Pakistan is fully aware of the presence of RAW agents, why can’t these perpetrators be arrested?  The reply is simple; these agents are so skillfully embedded in the society that even their next-door neighbors can’t identify them. They live in thickly populated areas where inter-faith harmony exists at its best. These perpetrators normally enjoy high repute in the areas where they live in and also don’t indulge in any suspicious activity. But, they have their touts in other areas that are fully supported financially as well as supplied most lethal arms. Their touts have been completely brained washed and are blood-thirsty. The just can’t sleep without ‘enjoying the pleasure of killing a few innocents’.

Last year I had posted a blog on 6th September and its title was ‘Celebrating 50 years of 1965 war’. I have witnessed 1965 and 1971 wars besides uncountable border firing cases. I said that extremist Hindus have not accepted the partition of the subcontinent and are adamant at destroying Pakistan. Their repeated failures prove that these extremists have not been able to achieve their ultimate objective of eliminating Pakistan from the world map only because of patriotic citizens.

I am also of the view that over the years India has changed its strategy and abstain from entering into any major border conflict. Now it supports its embedded elements i.e. various militant groups busy in sabotage in the name of religious fanaticism, self-proclaimed discontent and targeted killing of religious scholars, academicians and social figures that raise voice against the terrorists and demand weeding out of these highly ruthless elements.

Being a student of geopolitics I also keep an eye on proxy wars being fought in general and in Pakistan’s neighborhood in particular. I can say without mincing my words that the super powers create issues, assemble rebel groups, and provide those funds, arms and training. They also prepare hawks that spread hatred among people belonging to different religions/sects and speaking different languages.

Pakistan has been fighting a proxy war in Afghanistan for more than four decades and has faced the worst fallout. Its social fabric has been destroyed, millions of militants are hibernating in Pakistan (they wear different caps) and use residents of areas as human shields. These culprits often enjoy the support of local political, sectarian and linguistic group as they also play the role of ‘militant groups’ of these outfits.

These perpetrators kill people for money and only for money. Their sanctuaries are located in Punjab, KP and Baluchistan provinces and they also keep coming to Sindh, the financial hub of Pakistan for the collection of booty. One wonders what the people posted at various check points are doing to check and contain the movement of these culprits.

I am also a staunch believer that since 9/11 millions of people have been killed in Iraq, Afghanistan, Libya, Yemen, Syria, Sudan and Pakistan. Most of these countries do not suffer from any serious internal conflicts but those inculcated and groomed by super powers.

If Pakistanis have to live and progress, everyone has to stand up, identify the culprits and weed them out. People have to keep a close watch at their surrounding and stop any suspected person seeking refuge in their neighborhood. As a first measure, they have to strengthen interfaith harmony so that no can exploit them in the name of religion, Islam does not teach killing. Remember, any one killing innocent people is not Muslim.

Pakistan market closes below 40,000 despite higher turnover

The week remained a cliffhanger for markets, coming off of the high-water mark of 40,000 as result announcements were met with a passive reaction from market participants. The index closed the week at 39,465 points, down 1.2%WoW. Expansion plans in the cement sector; strong order book for new model launches accompanied by rumors or planned capacity enhancements in autos and building materials kept select scrips in the limelight.

Healthy uptick of 60.2%WoW in volumes, average daily turnover for the week rose to 371.8 million shares as compared to 232 million shares a week ago. This was a reflection of heightened activity during earnings seasons. Volumes leaders remained retail favorites in the mid and small cap categories with solid average daily turnovers from: KEL, BYCO, DCL and DSFL. Gainers at the bourse were: SHEL, HCAR, ASTL and PSMC. Conversely laggards were: PIOC, MLCF, LUCK and CHCC.

In a trigger‐less backdrop, market participants may retain a downside bias to political developments, where bearish sentiment may trigger a spell of consolidation marking this September. Event risk in the form of macro developments including oil prices (OPEC ministers meeting in September and November), USFOMC's meeting (to possibly trigger another rate hike) and the SBP's rate decision (expected by end of the month) have the potential to spill over into markets.

The MSCI hype fizzled out with the market returning 0.02%MoM in August 2016 against an average 4%+ returns in the previous two months. Unable to sustain at 40,000 level during the month, the index retraced from its all‐time high of 40,057 points, to close at 39,810 levels. Foreign participation, took a back seat with net outflow of US$20.4 million versus inflow of US$23.2 million in July 2016. While volumes for PSX‐100 constituents remained flat, increased participation in small cap stocks bolstered overall volumes by 36.5%YoY with KEL, DCL and DSFL leading the volumes chart. Result season guided market sentiments predominantly with interest coming in sectors depicting above expected earnings announcements. In terms of performance amongst the main board, Automobiles, Textiles, Oil & Gas and Commercial Banks superseded the rest while Cements and Fertilizers lagged behind. Going into September 2016, analysts believe the market will continue hovering around the current level with political risks coming to the fore. Globally, key events to track are: 1) US FOMC meeting scheduled on 20-21 September potentially impacting the dollar and consequently regional equities and 2) an informal OPEC meeting on 28th September to discuss production freeze on oil.

Recently released NFDC numbers revealing higher fertilizer offtake during July 2016, where total fertilizer sales was 1.1 million tons against 618000 tons sold in July 2015 (up 78%YoY/58%MoM), a clear reflection of the subsidy package announced in budget FY17. In tandem, urea sales have also increased significantly by 66%YoY/32%MoM to 777,900 tons during the month under review. However, on a cumulative basis, fertilizer sales remained dismal during 7MCY16, as total fertilizer and urea offtake was 3.96 million tons (down 15%YoY) and 2.60 million tons (down 22%YoY) respectively. Similarly, DAP sales also remained strong during the month under review, registering an increase to 199,000 tons, of which imported DAP offtake amounted to 131,000. EFERT and FATIMA have come out as clear winners with urea sales for both recovering significantly.

Freezing oil output is a hoax call

Once again there is an uproar that oil producers want to talk about freezing output. It sound very funny that while the big producers are not willing to curtail their production, they want smaller producers to reduce their output.

It is on record that Saudi Arabia has persistently increased its output, but wants Iran to agree to freeze output without reaching its pre-sanction output level. It is on record that lately Saudi Arabia has been pumping one million barrels daily above its historical average.

On the face value it appears that the rift between two OPEC members, Iran and Saudi Arabia is not a complete fallacy. Saudi Arab is not willing to curtail its output because it is afraid of United States and Russia, which are adamant at causing damage to its desire to become a regional superpower, surpassing Iranian might.

Both United States and Russia are fighting a proxy war with Saudi Arabia in Syria and Yemen. Both the super powers know very well that the only way to cause dent to Saudi lust for wars is by reducing its petrodollar income.

In my humble opinion if Saudi Arabia cuts its production and price goes up by one dollar per barrel, it will not be a major loser. However, this may pave way for the US shale producers to increase their output. But a point must also be kept in mind that the US shale producers have not gone bankrupt and continue to pose a major threat to Saudi Arabia.  

Though, it may sound a little divergence from the topic, I just can’t resist from saying that the Zionists have completely brain washed Saudis who openly say that Iran is a bigger threat as compared to Israel. Having belief in this absurd idea, Saudi Arabia has emerged as the biggest buyer of arms.

I would also say that Saudis have enough petrodollars, if they stopped buying arms. Their animosity with Iran has been a cause of instability in the region but more importantly buying arms has not given it supremacy over its rival.

PSX-100 Index filtering at 40,000 level

Ignoring recent political flare up the benchmark of Pakistan Stock exchange, PSX-100 index resumed bullish momentum during the week ended 26^th August. After some recent profit-taking, the benchmark Index closed the week at 39,927 points. Average daily volumes for the week remained almost flat a little above 232 million shares with KEL, TRG, DFML, SNGP and AMTEX leading the board.

Key news flows during the week included: 1) GoP announced that claims for tax refunds for which payment orders were issued till 30^th April would be settled by 23^rd August this year, 2) SSGC in its plan submitted to the OGDC indicated spending Rs118.5 billion on its ongoing and new projects for improving and upgrading its transmission and distribution network, including RLNG transmission projects over the next 5 years, 3) meeting of the Drug Pricing Committee (DPC) summoned on 30^th of this month, where pharmaceutical companies have appealed to the government to increase the prices of various medicines, 4) ADB approved US$810 million in multi-tranche loans for Pakistan's transmission system, funding rehabilitation of NTDC's grid, 5) service deficit rose to US$290 billion, as against a surplus of US$51 million last year and 6) due diligence for MCB acquisition of NIB nearing completion.

Performance leaders during the week were: SNGP, ASTL, ICI and PSMC; while laggards included: HMB, SHEL, FATIMA and PPL. Foreign participation also eased out where net inflows during the week amounted to US$1.9 million as against considerably high net outflows of US$18.4 million a week ago.

Interest in the coming week is likely to be centered around the remainder of the corporate result for the season especially cement sector. Major companies scheduled to announce results include LUCK, DGKC, KOHC, KAPCO, GHNL, KML, ICI, AGIL and SMBL. At the tail‐end of earnings season, analysts expect the index to remain range-bound, in the absence of major triggers. Global developments surrounding oil prices and speculations over an output freeze by major oil producers may spur the index heavy Oil & Gas sector.

Reflecting lower remittances and delay in CSF installments, current account deficit for July 2016 widened to US$591 million. Remittances received during the month declined 20% YoY/36%MoM on account of 1) worsening labor dynamics in GCC region, 2) greater regulatory monitoring in US, and 3) seasonal impact from Ramadan. Trade deficit also continued to worsen; where monthly deficit widened 18%YoY with exports declining 6.6%YoY and imports rising 6.2%YoY in July 2016. Foreign investment flows remained a mixed bag; with portfolio investments staying in the positive zone (US$49.5 million inflows as compared to US$24.7 million outflows), FDI registered a decline of 14.6%YoY on reduced investments from China (decline of 75.8%YoY). Going forward, analysts expect current account to post a deficit of 1.7% of GDP during FY17 underpinned by weak trade outlook amid stagnant remittance inflows.

National Bank of Pakistan (NBP) has posted consolidated profit after tax of above Rs10 billion (EPS: Rs4.74) for 1HCY16 as compared to net profit of Rs7.8 billion (EPS: Rs3.70) for 1HCY15, up by hefty 28%YoY. This above expectations performance can be attributed to higher net interest income (NII) along with lower than expected provisioning expense. Sequentially, there was a substantial 51%QoQ uptick in earnings on the back of 31%QoQ higher NII and capital gains, despite higher tax incidence (tax rate of 45% in 2QCY16 as compared to 35.0% in 1QCY16). Key 1HCY16 result highlights included: 1) a 9%YoY/31%QoQ increase in NII, 2) provisions down 78% YoY/48%QoQ to Rs1.3 billion during the period under review, 3) non-interest income came down by 20%YoY due to 54%YoY lower capital gains. However, fee income posted a considerable rise of 20%YoY during 1HCY16 and 4) a 8%YoY increase in total expenses. Sequential uptick can be attributed to growth in NII that was up by a commendable 31%YoY. NBP’s 1HCY16 earnings performance is encouraging due to growth in NII along with improvement in asset quality.

Continuing with its disappointing trend, detailed data for external trade reflects a marked decline during July 2016, where exports were registered at US$1.48 billion, down 7.4%YoY/10.4%MoM. Exports registered a decline across all segments, with highest impact coming from the heavyweight Food and Textile sectors at US$185.5 million and US$982.6 million, posting decline of 15.4%YoY and 4.2% YoY respectively. Going forward, despite a buildup in pressures due to weakness in PkR/US$ parity. Analysts expect textile exports to remain under pressure on the basis of: 1) lower Chinese demand due to slow economic growth, 2) lack of currency competitiveness (as opposed to regional competitors) limiting GSP+ benefits, 3) concerns of an economic slowdown in the EU following Brexit and 4) shortage of cotton supply after tapering cotton production last year with arrivals down by 34%YoY.

Selling by foreigners keeps Pakistan stock market under pressure

The benchmark of Pakistan Stock Exchange breached 40,000 mark during the week ended August 19, 2016. This prompted the investors to indulge in profit taking in the later part of the week to pull the index below 40,000 level. Foreign selling added to the pressure with outflows for the week at US$18.38 million considerably higher than US$1.03 million earlier. Daily average volume for the week also declined 12.9%WoW to average 230.69 million shares.

Key news flows during the week included: 1) MTB yields remain unchanged across all tenors in the week’s auction despite heavy participation with bids amounting to above Rs659 billion where the GoP raised Rs373 billion, 2) FDI declined 14.6%YoY with net flows of US$64.3 million in July’16 with total foreign investment for the month at US$113.9 million on rising portfolio investments, 3) the NA Standing Committee on Finance approved the Benami Transaction (Prohibition) Bill, 4) ECC approved sale of imported urea available with NFML at a discounted price of Rs1310/bag compared to the subsidized local price of Rs1,400/bag, 5) GoP got ready to float fresh tenders for the import of 200 mmcfd of LNG to cope with the expected surge in demand during winter this year and 6) Privatization Commission sought comfort letter on PPA and generation license of KAPCO from the Ministry of Water & Power to offer GoP’s residual shares to investors during domestic road shows.

Interest in the coming week is likely to be centered on remainder corporate results for the quarter. Major companies scheduled to announce results include HUBC, KAPCO, OGDC, CHCC, BAFL, NBP and INDU. However lacking major triggers, the broader market is expected to remain listless. Global crude prices are likely to be tracked keenly ahead of OPEC’s meeting next month.

Renewing concerns on potential slowdown in remittance flows on worsening global financial dynamics, inflows during July'16 marked a sharp decline of 20%YoY/36%MoM to US$1.33 billion ‐ the lowest monthly flow since April'14. This reflected unfavorable developments that included: 1) slowdown in GCC economies on oil price slump and 2) US regulatory tightening on money transfer. While room remains for volatility in the Rupee on sluggish remittances, analysts maintain their FY17 forecast of 3% PkR/US$ depreciation on Pakistan’s foreign exchange reserve strength. In terms of its implication on the banking sector, some revenue dilution can be expected in UBL, HBL and NBP with remittances contributing more than 10% to total fee income approximately. However, expansion in branchless banking segment is likely to provide a buffer to any downside arising from slower remittances growth having no material impact on banks' earnings.

Exhibiting the brunt of monsoon season, latest APCMA's dispatches data depicts domestic demand growth of 3.9%YoY in July'16, far lower than 9.2%YoY growth in June'16. While flatter exports during July’16 as compared to the previous month indicated that freefall has likely ceased, settling at new normal levels post anti‐dumping duties imposed by major cement export markets (South Africa/Iraq). However, exports increased 20.2%MoM in July'16 as against a 15.7%MoM in July'15. While the slowdown in demand has much to do with the seasonal factors, analysts believe demand to start picking up from August'16 as construction activity is likely to pick pace post‐monsoon.

Has OPEC lost control on oil prices?

A hype is being created that both OPEC and non-OPEC oil producers will sit down once gain to work out the strategy to curtail supply. The need has been felt because faltering global economy fails in boosting consumption. It is widely anticipated that the meeting will not yield any result because of the Saudi stance.

The largest oil producing member of OPEC is not willing to cut its own production but trying to shift the blame to Iran for the prevailing glut. Saudi Arab has repeatedly expressed its unwillingness to curb production unless Iran responds in the similar manner.

Over the months it has become evident that Iran will not commit for any reduction in its production unless the country regains its lost market share, due to the imposition of economic sanctions. Therefore, Saudi Arabia must cut its production and set precedence for other countries.

One can easily understand unwillingness of Saudi Arabia to cut production because of its funding of proxy war in Yemen, Syria and various other countries. Though, Saudis will never accept this acquisition but just can’t deny the harsh reality that tolerating a prospering Iran is unbearable for it.

One has all the reasons to believe that Saudi Arabia needs more petrodollars for buying arms for the rebel groups. It has been feeding Syrian rebel groups for years, which has also forced Iran to support the oppressed groups in Yemen, Bahrain and Syria.

Therefore, one should abstain from believing that OPEC will agree on curtailing oil production. The situation can improve only if consumption improves. May be it is hoping against hope but that is the only silver lining.

Pakistan Stock Exchange fails to sustain 40,000 level

During the week ended August 12, 2016, the benchmark of Pakistan Stock Exchange PSX‐100 Index grew by 1.3%WoW. It briefly rose above 40,000 mark but failed to sustain the trend and finally closed slightly lower at 39,908. Top tier banks like UBL and HBL and E&Ps particularly PPL, OGDC, POL helped the Index attain new high.
Key news flows during the week were: 1) overseas Pakistanis remitted US$1.33 billion during July'16 as compared to US$1.66 billion received in July15, posting a decline of 20%YoY, 2) Government borrowing from the central bank shot up almost to Rs786 billion in July'16 against Rs113 billion during the corresponding month of last year, 3) PSO, the country's biggest oil marketing firm, imported 42 cargos carrying 133,307,087 mmbtu of LNG since March'15 to meet growing energy requirements and, 4) cement sales to domestic markets showed a healthy increase of 12.4%YoY during July'16, whereas exports remained almost flat. Top performers for the week were: APL, HCAR, POL and PPL. On the flipside PTC, MCB, AGTL and NCL were the laggards. Volume leaders on the basis of average daily traded shares for the week were KEL, DSFL, DCL and NIB.

Attock group companies are likely to kick off the coming week's earnings announcements. The key energy companies to follow are APL, POL and index heavyweights HBL and ENGRO. Devoid of major developments on the political front, continuation of earnings season may lead to consolidation in the market with side stocks gaining steam. Additionally, anticipations regarding OPEC's meeting announced for next month may keep Oil & Gas scrips in focus.

In line with expectations, MCB Bank has posted consolidated profit after tax (PAT) of Rs11.1 billion (EPS: Rs9.84) for 1HCY16 as compared to PAT of Rs13.0 billion (EPS: Rs11.7) for 1HCY15, down 15%YoY. Alongside the result, MCB also announced a second interim dividend of Rs4.0/share. The 21%QoQ drop in earnings was on the back of higher tax incidence on tcontinuation of super tax (tax rate of 52% in 2QCY16 as compared to 34% in 1QCY16). Key 1HCY16 result highlights included: 1) a 4%YoY decline in NII, 2) reversals of Rs564 million in 1HCY16 as against Rs756 million same period last year, 3) a 34%YoY decline in non-interest income amid lower capital gains, utilizing Rs682 million in the half under review against Rs2.9 billion in same period last year, 4) manageable 3%YoY increase in expenses.

ABL has posted slightly above expectations consolidated PAT of Rs8.8 billion (EPS: Rs7.58) for 1HCY16 as compared to PAT of Rs7.5 billion (EPS: Rs6.55) for 1HCY15, up by 16%YoY. The deviation in projection and actual can be attributed to higher utilization of capital gains of Rs2.5 billion. Also provisions were lower at Rs243 million against the forecast. Sequentially, a 20%QoQ decline in earnings was on the back of higher tax incidence (tax rate of 47.7% in 2QCY16 as compared to 35.0% in 1QCY16). Alongside the result, ABL also announced a second interim dividend of Rs1.75/share. Key 1HCY16 result highlights were: 1) a 2%YoY/8%QoQ uptick in NII, 2) provisioning of Rs243 million for 1HCY16 as compared to Rs550 million during the same period last year with reversals worth Rs33.3 million booked during the second quarter, 3) a 21%YoY jump in non-interest income amid higher capital gains and fee income and 4) a 9%YoY increase in total expenses.  While ABL’s 1HCY16 earnings performance remains heavily influenced by capital gains, growth in net interest income is encouraging. Non-interest income has grown too however still remains under 30% of total income, a concern particularly when peer banks have grown in this regard.

The AKD Cement Universe has remained in limelight on account of robust domestic demand. Going forward, the brokerage house expects this trend to continue to drive growth backed by the government's strong focus on infrastructure development and rising private sector development. However, short-term risks to domestic demand have sprung in the form of incidence of new property tax on SBP's new valuation methodology. While the real estate market might suffer in the short‐run brokerage house believes it to have no viable impact on earnings growth so far. Moreover, irrational buildup of expansions in South Region may create significant pricing pressure as the domestic demand growth may not accommodate such a huge increase. This potentially points towards the rivalry between LUCK and DGKC for the market share. While risk of pricing indiscipline has increased, rapid increase in coal prices (+31% CYTD) will likely crimp up the margins further. Though, rising costs are unlikely to be passed on to consumers as the cement prices are at historic high levels, upcoming energy diversification projects are likely to provide some relief.