The KSE-100 Index gained 1.28%WoW to close at 25,579 points and average daily traded volume increased by 27%WoW to 268 million shares. Key news flows during the week included 1) Prime Minister Nawaz Sharif refused to allow the increase in gas tariffs proposed by Ministry of Finance and instructed additional 85mmcfd gas to be diverted to industries for two months, 2) The ECC directed NEPRA to determine the tariff for coal conversion of four IPPs, 3) the visiting delegation of Etisalat promised to take up the matter of payment of US$800 million to Pakistan with the Board of Directors while PTC issued a binding offer to acquire a 100% stake in Warid Telecom , 4) PTA signed a formal contract with VPCML for 3G auction to be conducted in February next year, 5) current account deficit for 5MFY14 clocked in at $1.89 billion while foreign exchange reserves increased by $505 million WoW as Pakistan received inflows from multi-lateral institutions and 6) the Executive Board of the IMF completed its quarterly review of the EFF program and approved immediate disbursement of about $550 million . Top gainers of the week were SHEL, ICI, BAFL, AKBL, and FFBL. Top losers during the week included ENGRO , AICL, LOTCHEM, SNGP and EFOODS. Analysts expect market sentiment to continue to be driven by anticipated regulatory changes where upcoming decisions on gas tariff rationalization, revision of OMC margins and re-fixing of deemed duty for refineries needs to be closely monitored. Moreover, with CPI expected to remain in double digits and the GoPís resolve to contain PkR/USD depreciation, continuation of monetary tightening policy cannot be ruled out. The Executive Board of the IMF has completed its quarterly review of the EFF program and has approved immediate disbursement of about $550 million . In doing so, the performance criterion on net international reserves was also waived. While expressing overall satisfaction over Pakistanís performance in the program thus far, the IMF has pointed out the need to deepen structural reforms, improve tax administration, further enhance energy sector efficiency and rebuild foreign exchange reserves. Regarding the latter, the IMF has called for the SBP to use the policy tools at its disposal, including policy rate adjustments. Considering the entry into the latest IMF program, the GoP has to take tough decisions on the fiscal front. For the release of quarterly disbursements under the EFF program. During 2014 sizeable repayments have to be made to the IMF pertaining to the previous SBA program. With other multilaterals expected to continue their own disbursements, it appears that foreign exchange reserves have bottomed out with fresh FDI/privatization proceeds to provide impetus. According to news reports, the GoP is planning to offload 12% shares of UBL and ABL in early CY14 as part of the privatization drive. It is estimated that the GoP owns about a 20% share in UBL and 12% share in ABL. While it is unclear whether the GoP will divest 12% from its stake or 12% of the bankís total capital, this is a welcome sign that the privatization process is on track. Considering low foreign exchange reserves is a key concern for the SBP, it is believed part of the GoPís holdings in these banks should be marked for foreign investors where the combined market value of the GoPís stakes in UBL and ABL arrives at more than $400 million . Going forward, other entities that could potentially see fast-track divestments include HBL, OGDC and PPL, where realization of foreign exchange proceeds on these big-ticket items (combined market capitalization of US$12.05 billion ) will likely provide time and space for the GoP to chalk out and implement turnaround/privatization plans for entities such as PIA and Pakistan Steel Mills. The Pakistan Institute of Development Economics (PIDE) has reportedly recommended an upward revision in OMC margins by Rs0.8 /litre on MS and HSD. This is substantially higher than the earlier expected hike of Rs0.3 /litre to Rs0.5 /litre and would result in earnings impact of around 10% for PSO in FY14 and 18% across the forecast horizon. Analysts expect MS volumes during FY14 to increase by 18%YoY to a record 2 million tons, where higher regulated margin on the product should also partially offset downside from increased borrowing requirements as FO volumes remain on the uptrend post circular debt retirement in Juneí13. While analysts still await endorsement of the proposed hike in margins by the MoPNR and ECC, they believe the approval is very likely given persistent lobbying by industry heavyweights and rising inflationary pressures. Lately, Pakistan has been granted GSP Plus status by the European Union likely to yield additional one billion dollar export. The country is likely to depend on textiles and clothing export and the decision has been made to supply additional gas to textile units. Availability and price of cotton will also determine the competitiveness of Pakistani exporters in the global markets. According to data released by PCGA, total cotton arrivals in the country were up by 14%YoY or 1.48 million bales to 12.25 million bales. Punjab contributed 70% in total arrivals with 8.63 million bales and Sindh contributed 30% with 3.61 million bales. The robust cotton arrivals from Punjab posted a growth of 13%YoY (0.99 million bales) due to better crop in lower Punjab. The cotton arrivals from Sindh also followed the same positive trend registering an enormous growth of 16%YoY (+0.49 million bales) to 3.61 million bales as compared to 3.12 million bales in the same period last year. District Sanghar remained the main producer having 11% share in the total cotton production in the country. As per the latest figures, cotton production from the same improved by colossal 11%YoY to 1.37 million bales. In addition to that, district Rahim Yar Khan was on second position with 9% share in the accumulated cotton arrivals of the country, rising by 9%YoY (up 253,000 bales) to 1.08 million bales. Despite cheering arrivals, cotton price increased by 10%YoY to Rs6,600 /maund on December 18, 2013 . The average price of cotton during the current season has remained around Rs6,688 /maund. In the same way, international cotton price benchmark, Cotlook-A Index also surged to 88.15, registering a growth of 4.8%YoY. Going forward, analysts anticipate the average prices to hover around Rs6,500 /maund during the current season.
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