In line with our expectations, State Bank of Pakistan has decided 50bps cut in the discount rate to 8% which is nearly ten year low.
Better Economic Indicator Leads to DR Cut:
Owing to better and increasing number of economic indicator, SBP has cut discount rate. Improving economic indicators include lower inflation readings, higher GDP projections, rise in foreign exchange reserves and controllable fiscal deficit.
CPI - A Core Factor:
CPI inflation continuously moving in downward trajectory and is expected to be well below the annual target of 8%. As per the latest data of Feb'15, CPI further eased to 3.20% YoY to 11-year low as compared to 3.9% in the previous month. Sharp dropped in inflation mainly contributed by 1) decline in transport fares, 2) overall stable food prizes, and 3) fall in petroleum product prices. We expect inflation to further ease at 2.7% in Mar'15.
GDP Likely to Improve:
We expect economy growth to continue with a growth of 4.8% in FY15. The main factor likely responsible for higher economic growth would be servicing sector as the sector is expected to post growth of 4.1% due to growth from finance & insurance sector, general government services and transport sector. Similarly, agriculture sector would also perform well due to better output expected from cotton and rice crops. Furthermore, large-scale manufacturing is likely to gain momentum owing to recent cut in policy rate and low prices of raw materials.
Current Account in Comfort Zone:
Current account is expected to remain in control during FY15 due to strong workers' remittances and declining import growth. Current account in Pakistan register surplus of $877 million during Feb'15 from deficit of $74 million in Jan'15. The current account surplus was made possible mainly due to receiving of Coalition support fund, reduction in trade deficit, income deficit along with higher workers remittance.
Cements, Power, Textiles to be the Major Beneficiaries:
Decline in discount rate is enormously fruitful for companies that rely on borrowing. Cement sector to remain our top ranking sector and among them DGKC, MLCF, FCCL would provide decent opportunity to invest. Power is also leveraged sector as their need huge working capital which would reduce borrowing cost. On top of that power sector still providing double digit growth which hardly to find else where. Fertilizer sector players to enjoy the cut as well and we expect 5% increase in their earnings/valuations for CY15 but ENGRO and FATIMA are highly leveraged thus their earnings to
improve by 7% for CY15. On the other hands, banking sector earnings to marginally decline due to heavy investment in long term papers.
improve by 7% for CY15. On the other hands, banking sector earnings to marginally decline due to heavy investment in long term papers.
Equity Market decline by 8% Provide Opportunity:
KSE-100 Index has drop 7.7% since 1 Feb'15 due to selling from foreign investors and conflict between SECP and brokers. We suggest investors should focus on dividend paying stocks and leverage companies while offshore investors and corporate result would be trigger for the market.
for any help please call +9221-111-293-293
info@azeetrade.com
visit www.azeetrade.com
follow us www.facebook.com/azeetrade
No comments:
Post a Comment