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Fund Manager Review on Economy - June 2022

Sarmaaya Desk
Sarmaaya Content Team
Fund Name AUM No of Funds Market Outlook for future
NBP Fund Management Limited 170 bn 43 Positive
ABL Asset Management Limited 77 bn 30 Neutral
UBL Fund Managers Limited 117 bn 38 Positive
Al Meezan Investment management limited 161 bn 33 Positive
National Investment Trust limited 89 bn 15 Nil
NBP Fund Management Limited Review:

The benchmark KSE100 index lost 1,537 points during the month, correcting by 3.6% MoM.Additionally, it marks the completion of FY22, which was disappointing for equities market investors due to the benchmark KSE100 index's 12.3% annual decline, or a loss of roughly 5,815 points.
The stock market began the month on a gloomy note, carrying over the negativity from the previous month. On June 10, the newly elected coalition government unveiled the federal budget for FY23, and the press coverage of the budget influenced the market. The initial budget announcement was not a big deal for the capital markets because no significant tax increases or incentives were made, which raised questions about whether the IMF would restart its lending programme. Despite some encouraging developments over the month, investors were unimpressed. Firstly, the FATF finished its plenary meeting, at which the watchdog accepted that Pakistan's action plans had been completed and allowed a site visit to Pakistan as a last resort to remove Pakistan from the FATF's grey list. Second, China finally gave the country USD 2.3 billion in June, which had been long overdue. Additionally, there were hints that China might provide the nation another USD 2.5 to 2.8 billion in the second phase.
Finally, Miftah Ismail, the finance minister, voiced his optimism that the government was extremely close to finalising the IMF deal. However, the positivity was transient and later on, as the government drafted final changes in the budget to gain approval of IMF, it imposed 10% super tax (2% initially in the budget) as poverty alleviation tax across 13 industries, which triggered indiscriminate panic selling in the market. During the month, current account deficit (CAD) was reported at USD 1.4 billion, due to seasonal drop in remittances. Inflation as measured by CPI for June-22 clocked in at whopping 21.3%, which overshot street consensus, due to massive increase in utility tariffs taking FY22 average inflation to 12.1%.
During the month, Auto Assemblers, Chemicals, Oil & Gas Exploration, Oil & Gas Marketing, and Refinery sector, stocks outperformed the market. On the contrary, Auto Parts & Access., Cable & Elec. Goods,Banks, Cements, Engineering, Glass & Ceramics and Textile Composite sector, stocks lagged behind. On participant-wise activity, Banks/DFIs and Individuals emerged the largest buyers, with net inflows of around USD 31 million and USD 6 million, respectively. On the other hand, net outflows of around USD 20 million and USD 11 million was seen from Mutual Funds & Foreigners.
From fundamental perspective, market is trading at an attractive Price-to-Earnings (P/E) multiple of 4.4x, versus historical average of 8.2x. The market also offers healthy dividend yield of around 7-8%. We advise investors with medium to long-term horizon to build position in the stock market.

ABL Asset Management Limited Review:

In the month of June’22, a further delay in the IMF approval and a lot of other factors lowered the equity index again. Though the Finance Bill 2022-23 was approved with amendments, however it imposed higher taxes on several industries and persons. A one-time 10% super tax was imposed on big industries. Fuel subsidy was also withdrawn and price hikes in fuel prices had raised the inationary concerns. Pak rupee also hit a new low of 211.93 against dollar. Though, some positive factors were also witnessed at month end such as an appreciation in the rupee leading to its closure at 204.8 PKR/USD on 30th June, 2022 and foreign exchange reserves rising by around $2bn on month end and this surge was recorded after a gap of many months. KMI-30 index witnessed a decline of 1,279 points (~1.83% MOM) and closed the period at 68,766 points. Average traded volume and value decreased by 16.6% MOM to 58.13mn and 12.8% MOM to USD 16.24mn, respectively. Foreign investors kept on selling by accrediting shares worth USD 12.48mn. On the domestic front, Companies, Individuals and Banks bought massively with a net buying of USD 22.2mn, USD 20.93mn, and USD 9.46mn respectively.

UBL Fund Managers Limited Review:

Continuing its losing streak from previous month, the local bourse gave up further ground in June with the benchmark KSE100 declining by 3.6% during the month. Notwithstanding favorable news flow on FATF, improvement in forex reserves and progress on IMF-Pakistan talks, a tough FY23 final budget, with inflationary bias and disproportionate taxation measures for the corporate sector/salaried individuals, dampened investor sentiments leading to a sell-off during the last few trading sessions of the month. The original budget failed to get the nod from IMF, forcing the government to roll back most of the relief measures. Large corporations now face additional 10% tax in 2022, which reduces to a permanent 4% in subsequent years. Foreigners remained net sellers offloading shares amounting to USD12.4mn during the month. Among domestic investors, companies and individuals remained net buyers, mopping up shares worth USD22.2mn and USD20.9mn.
We maintain a sanguine view on equities as the local bourse is currently trading at much discounted forward PE multiple of 4.1x as compared to historical PE of 8.5x. Also, market's current earnings yield differential with 10Y PIB yield is 11.5% (24.4% vs. 12.9%) which is much higher than the average yield gap of 1.1% over the last 15 years.

Al Meezan Investment Management Limited Review:

During the month of June 2022, KSE100 index lost 1,537 points (down 3.60%) to close at 41,540 points. The average daily volume of the market stood at 210 mn shares, down by 16.5% on MoM basis. Banks, Cements, and various cyclical stocks were the major negative contributors to the Index performance. The already weak sentiments in the market were further dented by news flow regarding tough measures to be taken by the sitting government in FY23 Budget. The government sought quick fix solutions to cater to the tax targets demanded by IMF and ended up taxing the already narrow tax base. Weak sentiments combined with thin liquidity have magnified the impact of even light liquidations by institutions in the market. Buyers have been unwilling to participate in the market despite record low valuation due to lack of clarity on resumption of the IMF program.
While near term volatility cannot be ruled out, we continue to maintain a long term positive outlook on equity market. We encourage investors to enhance their long-term exposures to the equities at these levels.

National Investment Trust limited Review:

The KSE100 index posted a return of -3.57% for the month of June, 2022. FY22 return for KSE-100 stood at -12.28% which was the lowest return of the index since FY19. The year was marred by challenges on both internal and external front, resulting in pressure on the macroeconomic front. Rise in international commodities prices particularly oil resulted in pressure on current account balance. Resultantly, inflation remained high and also put pressure on the exchange rate causing the PKR to lose 23% of its value against the USD during FY22. SBP raised its policy rate by a cumulative 675 bps during the year with current policy rate at 13.75%. Monthly Average volumes during June, 2022 stood at 209 million shares, a decline of 17% on a MoM basis. FY22 average volumes stood at 290 million shares, a substantial decline of 45% on a YoY basis. Foreign investors remained net sellers during the month June, with net outflow of USD 12.48 million, while the net outflow for FY22 stood at USD 297 million.

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