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Fund Manager Review on Economy - April 2022

Sarmaaya Desk
Sarmaaya Content Team

According to the market, the following are the top five mutual funds:

Fund Name Assets No of Funds Market Outlook for future
NBP Fund Management Limited 170 billion 43 Positive
ABL Asset Management Company Limited 77 billion 30 Neutral
UBL Fund Managers Limited 117 billion 38 Positive
Al Meezan Investment management limited 161 billion 33 Positive
National Investment Trust limited 89 billion 15 Neutral

Summary:

The economy is currently confronting historic fiscal and external account pressures. The government must immediately reduce retail fuel subsidies, refinance maturing external debt, and build additional external buffers. The market will be guided by any economic stabilisation measures taken by the existing administration, progress on the currently stalled IMF programme, news flow connected to the Federal Budget FY23, and movement in international commodity prices in the coming weeks. With the local bourse trading at a P/E of 4.8x, valuations already capture much of the aforesaid risks. For patient investors, potential catalysts should eventually unlock enormous value in the stock market. The market also offers healthy dividend yield of around 7-8%.

NBP Fund Management Limited Review:

Several extraordinary political developments and subsequent economic implications heightened the volatility of the index in the month of April-2022. The month started with vote of no-confidence (VONC) where PM dissolved assemblies on the ‘The Day’ but later the apex court took Suo Moto notice and the decision overturned to dissolve assemblies and restore the VONC. Shahbaz Sharif was sworn in as the new PM. The new Finance Minister (FM), Miftah Ismail rushed to meet the high-level IMF officials, where it has been principally agreed to resume IMF program. The stock market reacted with fervour and surged by around 4.9% in the subsequent week. The move didnt sustain long enough amidst challenging macro-economic and political environment and ahead of the tough requirements to meet IMF conditions for resumption of the program. SBP held an emergency meeting and raised the Policy Rate by a massive 2.5%, taking Policy Rate to 12.25%.
During the month, Auto Assemblers, Cable & Elec. Goods, Chemicals, Fertilizers, Glass & Ceramics, Insurance, Oil & Gas Marketing, Refinery, Technology, Textile Composite sectorstocks outperformed the market. On the contrary,Auto Parts & Access., Cements, Engineering, Food & Personal Care, Paper & Board, Pharmaceuticals, and Power Generation & Distribution sector stocks lagged behind.
Looking forward, we believe that current stock market valuations more than compensate for the risks highlighted. Therefore, we continue to look favourably towards the market in terms of return, whereby we expect the market to provide around 20% upside in CY22. From fundamental perspective, market is trading at an attractive Price-to-Earnings (P/E) multiple of 4.5x, versus historical year average of 7.7x. The market also offers healthy dividend yield of around 7-8%.

ABL Asset Management Limited Review:

April 22 was quite a happening month for Pakistan and the Pakistani economy. Ex-Prime Minister Imran Khan was deposed by a vote of no confidence in parliament and Mr. Shahbaz Sharif took oath as the 23rd Prime Minister of Pakistan. Though much of the political dust and uncertainties settled, yet the ousted PM Imran Khan announced protests in the country. Moreover in a surprise move, the State Bank of Pakistan (SBP) raised its benchmark interest rate by 250 basis points to 12.25%. Despite above events, KSE-100 index managed to remain range bound without any major impact. The market increased by meager 320 points (~0.71% MoM) and closed the month at 45,249 points. The market look attractive for medium to long term investor.

UBL Fund Managers Limited Review:

The euphoria that accompanied the political shift was short-lived. After initially surging by 3.7 percent, the benchmark KSE 100 Index ended April flat, as the new government's reluctance to take severe, but necessary, policy steps to confront an increasingly precarious macroeconomic situation weakened investor emotions. At 13.4% Y/Y in April, inflation was higher than expected. Higher perishable food item prices (+20.4 percent) were the main driver of M/M inflation (+1.6%). We expect further spike in inflation over the next few months when the government increases retail fuel prices and utility tariffs. With the local bourse trading at a P/E of 4.8x, valuations already capture much of the aforesaid risks. For patient investors, potential catalysts should eventually unlock enormous value in the stock market.

Al Meezan Investment Management Limited Review:

In April 22, the KMI-30 index rose 1.5 percent and the KSE-100 index rose 0.7% MoM, as the market stayed fairly favourable for the majority of the month due to a generally smooth political transition to a new government. The month saw several notable occurrences, including the resumption of talks with the IMF, a significant hike in the policy rate, and a following surge in secondary market fixed income yields.
The conclusion of the PM's visits to friendly countries, as well as the outcome of the Monetary Policy meeting, which could be held under a new SBP governor, will be key events to watch out for during May 22.
Given the foregoing, we anticipate short-term equity market performance will remain under pressure until the IMF programme is confirmed; nevertheless, this will require the government to make difficult and unpopular macroeconomic decisions. However, interest rates are projected to revert to a long-term norm of around 10% in the medium term, following tough economic activities and a likely decline in the commodity cycle, which would boost equities market returns. For short term investor with low risk appetite, we recommend exposure in fixed income. Long term investor with high risk tolerance are recommended to continue to gradually invest in equity market.

National Investment Trust limited Review:

The market swung almost 2,500 points during the month before concluding flat, returning 0.7 percent month over month to close the month at 45,249 points, up only 321 points (+0.7 percent). This volatility was largely caused by political instability following the creation of the new coalition administration. The market originally rose on hype the change of government, but the rally was short-lived as economic concerns resurfaced, causing investors to become nervous.
The SBP held an emergency monetary policy meeting in April-22 and raised policy rate by 250 basis points (bps) to 12.25%. The Monetary Policy Committee was of the view that since the last monetary policy meeting held in Mar’22, the outlook for inflation has deteriorated and risks to external stability have risen. Therefore, these developments necessitated a strong and proactive policy response.




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