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Fund Manager's View On Economic Outlook - June 2021

Sarmaaya Desk
Sarmaaya Content Team
Mutual Funds :

A mutual fund is a form of financial vehicle that invests in securities such as stocks, bonds, money market instruments, and other assets by pooling money from multiple investors. Financial managers manage mutual funds, allocating assets and attempting to generate capital gains or income for the fund's investors. Mutual funds allow small or individual investors access to professionally managed portfolios of shares, bonds, and other instruments. As a result, each stakeholder shares in the fund's gains and losses proportionally.

Mutual funds aggregate money from investors and use it to purchase other securities, most commonly stocks and bonds. The mutual fund company's worth is determined by the performance of the securities it purchases. As a result, when you purchase a mutual fund unit or share, you are purchasing the portfolio's performance or, more specifically, a portion of the portfolio's value. Investing in a mutual fund is not the same as investing in individual stocks. Unlike stock, mutual fund shares do not provide voting rights to their owners. Instead of a single holding, a mutual fund share represents investments in a variety of stocks (or other securities).

According to stats and the market following are the top five mutual funds: -

Fund Name Assets No. of Funds Market Future
National Investment Trust Limited 64 billion 15 Positive
ABL Asset Management Company Limited 34 billion 30 Positive
HBL Asset Management Limited 24 billion 30 Positive
JS Investments Limited 8 billion 24 Positive
Atlas Asset Management Limited 4 billion 19 Positive
Pakistan Mutual Funds this month:

According to National Investment Trust Limited during June 2021, the KMI-30 index returned -2.70 percent. In June 2021, the benchmark KMI-30 index reached an all-time high of 80,168. The level, however, could not be maintained, as the benchmark index ended the month with a negative close. The news that Pakistan had been downgraded by MSCI to FM status and that the FATF was delaying Pakistan's removal from the grey list was a major source of concern for investors. The performance of the KMI-30 Index during FY2021 nonetheless, was excellent as the index return stood at 39.32 percent. The return is the best FY return for the last 7 years. Despite the COVID-19 outbreak, the stock market performed well thanks to strong GDP growth and prompt government stimulus initiatives. During June 2021, NIT IEF returned -0.72 percent against a baseline return of -2.70 percent, indicating a 1.98 percent improved performance.

According to ABL Asset Management Company Limited, the CPI for the month was 9.70% YoY, compared to 8.59% YoY in the same time the previous year (SPLY). Inflation fell by 0.24 percent monthly, after rising by 0.10 percent the previous month. It is important to note that this month's decrease in inflation is not due to the base effect, but rather to lower food costs. However, there was a gain in the other indicators, which helped to keep the benefit in control. The average inflation rate for FY21 was 8.90% YoY, which was within the SBP's goal range of 7-9% YoY, compared to 10.76% YoY in the SPLY. T-bill auctions on June 21 saw significant participation in both 3M and 6M tenors, with 3M cutoff yields falling from 7.35 percent to 7.33 percent and 6M cutoff yields falling from 7.60 percent to 7.59 percent. However, the ministry only accepted PKR 28.22 billion in 12M tenors, with yields falling from 7.69 percent to 7.67 percent. The government borrowed a total of PKR 1,837.55 billion on June 21 across 3M, 6M, and 12M tenors. In the PIB auction held earlier this month, cutoff yields stayed unchanged. The 3Y threshold yield fell from 8.70 to 8.69 percent, while the 5Y and 10Y cutoff yields stayed steady at 9.20 and 9.839 percent, respectively. The benchmark index fell 540 points (1.1 percent MoM) for the month, closing at 47,356. The average traded volume increased by 25.8% month over month to 310 million dollars, while the value exchanged decreased by 5.0 percent to USD 89 million. The widening of the current account deficit, rising commodity prices in the international market, particularly Brent oil, and the FATF's decision to maintain the status quo (Pakistan's inclusion in the grey list) placed the market under pressure.

HBL Asset Management Limited says: “The Banking sector contributed -411 points to the index's drop this month, owing to foreign selling despite good prices. Due to rising coal costs and profit-taking, the cement sector contributed a minus 335 points. Furthermore, the E&P, Chemicals, and OMC sectors contributed -118, -74, and -49 points, respectively, during the month. On the other hand, thanks to System Limited's surge, the Technology sector contributed 100 points to the index. Due to lower valuation (trading at a Forward P/E of 6.1x versus the peer average of 15.7x) and improved macroeconomic conditions, Pakistani equities are anticipated to maintain their bullish trend.”

JS Investments Limited also has a say in this: “The KSE 100 corrected by 1.1 percent in June 2021 after a fantastic 8 percent return in May 2021. In place of the projected dosage of IMF austerity and more taxes, Tarin has committed to maintaining the fiscal deficit at present levels by growing tax collection. This is expected to be achieved without any additional taxing policies, but rather by expanding the tax net, Pakistan's Achilles Heel. The budget was, nonetheless, a boost for the share market. The current account deficit for the month was USD 632 million, up from USD 188 million the month before. The deficit increased as a result of a bigger trade imbalance and decreased remittances, although the current level is still manageable. CPI inflation fell from 10.9 percent to 9.7 percent on a month-over-month basis. We expect inflation to fall further as the higher base impact sets in, but the dangers of higher oil costs and rising commodity prices, in general, are increasing. Rising inflation could lead to an earlier than the projected rise in interest rates if commodity prices remain high in the coming quarters.”

For Atlas Asset Management Limited in June of this year, the benchmark KSE-100 index fell 1.13 percent (540.32 points) to close at 47,356.02 points. Daily average trading volumes climbed by 17.98% month over month in June, reaching 913 million shares from 774 million shares in May. Individuals, companies, mutual funds, other organizations, and banks each bought USD 51 million, USD 18 million, USD 9 million, USD 8 million, and USD 5 million. Food & Personal Care Products, Pharmaceuticals, Technology & Communication, Automobile Assembler, Engineering, and Power Generation & Distribution all outperformed the benchmark KSE-100 index, with returns of 7.6 percent, 4.4 percent, 4.1 percent, 3.2 percent, 1.4 percent, and 1.0 percent, respectively. Oil and gas exploration companies, commercial banks, and fertilizer companies all underperformed the benchmark index, with returns of -2.4 percent, -2.5 percent, and -3.2 percent, respectively. The Food & Personal Care Products, Pharmaceutical, Automobile Assembler, and Engineering sectors surpassed the KSE-100 index because of several benefits provided in the FY22 budget, including FED and sale tax exemptions for food and linked consumable goods and duty reductions on imports of more than 350.

Summary:

The stock market continues to hold a favorable picture for us. The economy has fundamentally steadied after a few years of volatility, and while dangers remain, we believe the stage is ready for equities to outperform fixed income once again. People must keep a strategic focus on a "bottom-up" strategy and match their exposure to stocks with high earnings potential.




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