The KSE-100 Index closed this past week at an all-time high level of 25,257, up 1.55%WoW, closing the week above the 25,000 points for the first time. Volumes picked up significantly during the week as investors continued to exhibit confidence in the market with average daily traded volumes exceeding 211 million shares, up 8.66%WoW. The most significant news during the week was the approval of the GSP Plus Status for Pakistan allowing preferential import tariffs to the country. Most importantly, the Status will allow Pakistan to export textiles to the EU free of import duties resulting in a strong rally for the textile sector on Friday. Other news flows affecting market sentiment during the week were 1) suspension and subsequent restoration of gas to all consumers excluding CNG and IPP, 2) announcement by the government regarding non materialization of the Iran-Pakistan Gas Pipeline Project and 3) approval of US$900 million loan by ADB for coal power generation unit in Jamshoro. Top gainers of the week included EFOODS (+13.4%WoW, on expectation of a rebound in profitability), AICL (up 11.1%WoW, on post bonus rally), LOTCHEM, NCL (up 8.2%WoW, on approval of GSP Plus Status) and ENGRO . Banks witness correction and the losers included AKBL, HMB, MCB, ABL and HBL. Auto industry sales during November'13 increased to 9,588 units, higher by 5%YoY but lower by 4%MoM. Considering auto financing continues to rise (+22%YoY/2%MoM to Rs54.8 billion ), analysts attribute sequentially lower sales by local assemblers to competition faced from imported variants and New Year registrations. Relatively weak November sales bring 5MFY14 industry volume off take to 52,384 units, up by 7%YoY with major impetus provided by HCAR (5MFY14 sales up by 26%YoY). Tractors combined 5MFY14 sales were lower by 37%YoY, sales increased by 31%MoM to 4,319 units, sequential tractor sales largely driven by pre-buying with GST scheduled to rise to 17% from January'14. Going forward, analysts await release of new models/AIDP-II as key catalysts. PSMC November'13 sales clocked in at 5,989 units, up by 7%YoY/8%MoM with sequential growth driven by Mehran sales (up by 30%MoM to 2,568 units) even as declines were recorded by Swift (lower by 9%MoM to 328 units) and Bolan (down 7%MoM to 1,003 units) variants. As a result, PSMC's cumulative 5MFY14 volume grew to 29,511 units, up by 4%YoY. INDU sales were 2,183 units, down by 16%MoM but marginally up by 3%YoY. 5MFY14 sales thereby grew marginally to 13,197 units. On an individual product basis, Corolla sales were recorded at 1,966 units, down by 13%MoM while Hilux sales dropped by a sharp 36%MoM to 192 units and Fortuner sales clocked in at just 25 units. HCAR recorded disappointing sales volumes of 1,310 units, down by 24%MoM/8%YoY. City sales dropped by 18%MoM to 820 units and Civic sales dropped by 32%MoM to 490 units. However, 5MFY14 sale of 9,334 units were up by 26%YoY. Sequentially higher tractor sales: Tractor sales increased by 31%MoM to 4,319 units, largely due to pre-buying in our view with GST set to increase to 17% from Jan'14, up from 10% at present. In this regard, Pakistan Industrial and Traders Associations Front (PIAF) and Lahore Chamber of Commerce and Industry (LCCI) have called for the withdrawal of this GST uptick but a final decision is still awaited. Sales of AGTL were at 1,814 units, at par with the previous month and lower by 23%YoY. Sales for MTL rebounded by a sharp 61%MoM to 2,505 units but this was still lower by 29%YoY. Pakistanís largest oil marketing company, Pakistan State Oil (PSO) has rallied 18% during second quarter so far on account of higher volume and likely margin hike by the government. In this brief an effort has been made to analyze prevailing situation and likely impact of changing economic fundamentals. PSO posted profit after tax of Rs7.8 billion (EPS: Rs31.57 ) for July-September quarter (1QFY14) as against net profit of Rs4.3 billion (EPS: Rs17.28 ) for the corresponding period last year. The main reason behind this massive growth in profit was increase in other income rising to Rs10 billion for the period under review. PSO received accrued income from HUBC and KAPCO on account of fuel supplied to them. PSOís accumulated volume for major products i.e. high speed diesel (HSD), furnace oil (FO) and motor gasoline (Mogas) increased by massive 17%YoY to 2.1 million tons during Oct-Noví13. Higher FO based generation and heightened CNG load-shedding were main reasons behind this volume growth. December volumes of Mogas are likely to increase further on account of CNG stations shut down in Punjab and Khyber Pakhtunkhwa provinces. Better profitability is anticipated for 2QFY14 on account of higher volumes. In addition to that, 2.1% depreciation in Pak rupee during 2QFYTD as against 5% during 1QFY14 will lessen the currency losses impact and increase the profitability. Sui Northern Gas Pipeline (SNGPL) has announced gas load management plan for winter and shut down of gas supply to CNG stations, captive power plants and industrial units in Punjab. At the same time, petrol pump owners in southern Punjab announced a complete shut down until margins on POL products will not be increased. Non-availability of CNG and POL products simultaneously made the case of margin hike stronger and analysts expect the government to take decision on much awaited issue of dealersí margin. USDA released its monthly report on cotton confirming market expectations of a reduction in production estimates over the last month where USDA cut its global production forecast for MY13/14 by 0.38 million bales from last month's forecast to 116.83 million bales. On the demand side, global consumption forecasts remained flattish at 109.68 million bales for MY13/14 as compared to last month's forecasts. Trade forecasts were revised downwards by 0.45 million bales on tighter supplies. This resulted in global ending inventory forecast of 96.41 million bales for MY13/14. While local cotton prices have come off by a significant 11% since the start of October'13 to Rs6,912 /maund as cotton arrivals increased in the markets, cotton prices remain 10% higher as compared to the same period last year. While local cotton prices have declined by a significant 11% since the start of October'13 to R6,912/maund due to higher arrivals, prices remain 10% higher as compared to the same period last year. Prices remain firm as compared to last year despite expectation of a larger crop this year due to higher expected demand for the commodity and depreciation of the Pak rupee against the greenback. In this regard, local cotton is currently trading at a discount of 16% to Cotlook A Index. Higher cotton prices are likely to result in a decline in spinning margins going forward.
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