AKD Securities Limited

Member Karachi Stock Exchange

Equity Research / Pakistan

Todays Daily
DR Outlook: A core issue.
After hitting a low of 6.93%YoY in Nov'12, CPI picked up for the second successive month, clocking in at 8.1%YoY in Jan'13 (implying a 1.67%MoM increase). The rise in sequential price pressures comes on the back of 1) Food inflation, up 2%MoM ( wheat prices up 11%MoM), 2) Housing and Utilities, up 1.75%MoM, 3) Transport, up 3.15%MoM (Motor fuel up 7%) and 4) Communication, up 3.85%MoM. This has led to 7MFY13 CPI to average 8.3%YoY, below the GoP's FY13 target and implying +ve real rate at 1%+. At the same time, Core inflation (trimmed) has inched up close to double digits, clocking in at 9.9%YoY in Jan'13 versus 9.2%YoY in Dec'12. Considering SBP appears to have been targeting Trimmed Core inflation, we believe the Discount Rate has bottomed, even as cutoff . yields in the last T-bill auction came off by 2bps-9bps.
KSE 100 - Index Current Previous Chg. 17,266.23 17,242.74 0.14%

Mkt Cap. (PkRbn/US$bn) Current Previous Chg. 4,328 / 44.33 4,326 / 44.30 0.06%

Daily Turnover (mn) Current Previous Chg. 142.38 272.76 -47.8%

Monday February 04, 2013

AKD Daily

Value Traded (PkRmn/U S$mn)

News and Views

Pakistan is scheduled to make IMF repayment of US$530mn in Feb'13, while another major payment is scheduled for May'13. Pakistan has to repay a total of US$1.7bn in IMF repayments during 2HFY13. In related news, the spread between interbank and open market PkR/US$ rates has widened with interbank PkR/US$ trading at 97.8 while open market rates are around PkR99.5/US$. The draft of the Shale Gas Policy has been prepared by the Ministry of Petroleum & Natural Resources, which will be forwarded to the ECC for approval. The SNGPL has not restored gas supplies to the industry in Punjab in spite of a commitment given by the federal adviser on petroleum and natural resources that gas would be restored for two days a week from Feb 1. In other news, Kara Babrowski, economic officer at the US Consulate in Karachi, has said that the US government cannot provide duty-free access to Pakistani textiles The Lahore High Court had given its verdict to suspend international clearing house (ICH) till further hearing - the next hearing is due on February 18, 2013. The SBP has issued a nationwide microfinance banking license to U Microfinance Bank Limited (formerly Rozgar Microfinance Bank Limited) to operate at the national level. In August 2012, PTC was allowed to . acquire 100% shareholding of Rozgar Microfinance Bank Limited.

Current Previous Chg.

3,917 / 40.11 6,046 / 61.92 -35.2%

SCRA Flow FYTD (US$mn) 31-Jan-12 247.64 30-Jan-12 247.76 Val. Chg (0.12)

(mn) 700 600 500 400 300 200 100 0

(Index) 18,500 17,500 16,500 15,500 14,500 13,500 12,500 11,500 10,500

Jan-12

Jul-12

Volume (LHS)

KSE-100 Index

Anum Dhedhi anum.dhedhi@akdsecurities.net

UAN:111-253-111 Ext: 693

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Copyright2013 AKD Securities Limited. All rights reserved. The information provided on this document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject AKD Securities or its affiliates to any registration requirement within such jurisdiction or country. Neither the information, nor any opinion contained in this document constitutes a solicitation or offer by AKD Securities or its affiliates to buy or sell any securities or provide any investment advice or service. AKD Securities does not warrant the accuracy of the information provided herein.

Jan-13

Apr-12

Oct-12

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AKD Securities Limited

Member Karachi Stock Exchange

DR Outlook: A core issue.

After hitting a low of 6.93%YoY in Nov'12, CPI picked up for the second successive month, clocking in at 8.1%YoY in Jan'13 (implying a 1.67%MoM increase). The rise in sequential price pressures comes on the back of 1) Food inflation, up 2%MoM ( wheat prices up 11%MoM), 2) Housing and Utilities, up 1.75%MoM, 3) Transport, up 3.15%MoM (Motor fuel up 7%) and 4) Communication, up 3.85%MoM. This has led to 7MFY13 CPI to average 8.3%YoY, below the GoP's FY13 target and implying +ve real rate at 1%+. At the same time, Core inflation (trimmed) has inched up close to double digits, clocking in at 9.9%YoY in Jan'13 versus 9.2%YoY in Dec'12. Considering SBP appears to have been targeting Trimmed Core inflation, we believe the Discount Rate has bottomed, even as cutoff yields in the last T-bill auction came off by 2bps-9bps. While we expect full-year FY13 CPI to average 8.6%YoY (assumed 1.2%MoM incremental increase), risks to inflationary pressure remains in view of 1) increasing pressure on PkR/US$ parity (depreciation of 3.2%%FYTD), 2) loose fiscal policy (fiscal deficit of 2.8% in 1HFY13) amidst possible further slippages ahead of general elections and 4) an uptrend in Core (NFNE and trimmed mean) inflation. Jan'13 CPI Review: Jan'13 CPI clocked in at 8.07%YoY implying a sharp 1.67%MoM increase. This brings 7MFY13 CPI to average at 8.3%YoY, comfortably below the Discount Rate (9.5%). The uptrend in CPI is attributed to 1) 2%MoM increase in Food inflation (particularly due to recent run-up in wheat prices), 2) 1.75% MoM increase in Housing & Utilities (house rent up 2%MoM and gas prices up 6%MoM), 3) 3.15%MoM increase in Transport group and 4) 3.85%MoM increase in Communication group. Going forward, we expect FY13 CPI to average well within the GoP's target of 9.5%YoY despite risks to inflationary pressures. Regarding the latter, further risks remain on the back of 1) increasing pressure on PkR/US$ parity (depreciation of 3.2%FYTD), 2) loose fiscal policy (deficit of 2.8% in 1HFY13) amidst possible further slippages ahead of general elections and . 4) an uptrend in Core (NFNE and trimmed mean) inflation. Status quo expected in Feb'13 MPS: Even though 7MFY13 CPI average at ~8.3%YoY, implying +ve real interest rate of 1%+, we believe SBP will adopt a cautious stance in the upcoming monetary policy. In this regard, Core Trimmed Inflation is nearly back to double digits and has averaged 9.9%YoY in 7MFY13. Considering a weak external account amidst IMF talks, any further decrease in the DR appears unlikely. We see increases to the DR later on in the year but believe the SBP may take a wait-andsee approach for now.
CPI Projections
13% 12% 11% 10% 9% 8% 7% 6%
Sep-12 Mar-12 May-12 Mar-13 May-13 Jan-12 Jul-12 Nov-12 Nov-11 Jan-13

CPI YoY +1.0%

+0.8% +1.2%

Source: PBS & AKD Research

DR vs. Trimmed Core

14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% Jul-12 Sep-12 Mar-12 Jan-12 Sep-11 May-12 Nov-12 Jan-13 Nov-11 Jan-13 13% 12% 11% 10% 9% 8% 7% Sep-12 May-12 Feb-12 Mar-12 Aug-12 Nov-12 Dec-12 Jan-12 Jun-12 Apr-12 Oct-12 Jul-12 6%

Monday February 04, 2013

AKD Daily

DR

Trimmed Core

Source: SBP, PBS & AKD Research

CPI Groups vs. CPI YoY% (RHS)

25% 20% 15% 10% 5% 0%

Food & Bev. CPI YoY% (RHS)

Clothing & Footwear Transport Housing, Water, Elec., Gas & Other

Source:PBS & AKD Research

CA vs. Remittances
1,600 1,400 1,200 1,000 800 600 400 200
Sep-12 May-12 Aug-12 Nov-12 Dec-12 Jun-12 Jul-12 Apr-12 Oct-12

1,200 1,000 800 600 400 200 (200) (400) (600) (800)

Home Remittances

Current Account (RHS)

Source:SBP & AKD Research

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AKD Securities Limited

Member Karachi Stock Exchange

Monday February 04, 2013

I,Anum Dhedhi, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is/or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I further certify that I do not have any beneficial holding of the . specific securities that I have recommendations on in this report.

AKD Daily

Rating Definitions
Buy Accumulate Neutral Reduce Sell > 20% upside potential > 5% to < 20% upside potential < 5% to > -5% potential < -5% to > -20% downside potential < -20% downside potential

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