Pakistan Pulse: (Jun-5-2013) Nawaz Sharif’s first speech and the stock market (PDF Attached) (June 5, 2013) There is a lot of euphoria in the market regarding the first speech of Pakistan’s new Prime Minister Nawaz Sharif after his oath-taking today. And investors both local and foreign believe that Mr Sharif will make surprising announcement that can revive the overall economy that suffered in last 5 years as it grew by around 3% a year on an average. We believe, the speech will focus on three broad areas, which include i) Power sector crisis that has restricted Pakistan’s economic growth in the past few years, ii) Emphasis on strengthening international relationships in particular with USA, Saudi Arabia and India. 3) Fiscal reforms, where the gov’t will focus on restructuring of hemorrhaging Public Sector Enterprises (PSEs). Investors more interested in power sector reforms From market perceptive, power crisis related announcement will hold vital interest for market participants. Circular debt has been a constant thorn in the profitability of the whole energy chain. Thus power sector reforms are something that market is most keenly interested in. We believe that market will positively react to any concrete steps that the gov’t will take to tackle the situation. As it will remove the bottlenecks and will spur profitability growth, especially across the energy chain. The speech is likely to entitle new gov’t plans to resolve the current stock of circular debt. Citing newspaper reports, new govt is planning to issue govt backed securities of Rs500bn. On the road ahead, the new Prime Minister is likely to advocate new gov’t resolve to limit pilferages and corruption within the energy sector. The steps may include i) restricting T&D losses, ii) corporatization and subsequent privatizations of state owned energy sector cos including DISCOs and GENCOs and iii) inducing private sector investment in power sector. Finally, the speech may show new govt’s intention to diversify country’s generation mix towards low cost options like hydel and coal. Budget, interest rate and BOP support With Pakistan market already rallying by 17% since beginning of May and 32% since start of this calendar year, we may see some consolidation as market has already build in many of these likely announcement. Going forward the upcoming budget and progress on foreign funding through IMF or friendly countries will be the key. With declining inflation, investors are eyeing a fall in interest rate that can be another trigger for market to look at. Regards, Topline Research
Posted on: Wed, 05 Jun 2013 06:06:34 +0000
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