By: Next Capital Limited
Monetary Policy: SBP has cut its policy rate by 50bp to 6.0% in its monetary policy on the weekend, based on sanguine inflation outlook. We lower our KIBOR estimates by 50bp, and reduce our risk-free rate assumption by 50bp to 8.5%.
This is positive for equity markets, both in terms of domestic liquidity and valuations. Short-term upside may be capped as Banking sector (25% weight in KSE-100) is expected to further under-perform.
Banks to feel earnings hit post July-16, when there is a heavy PIB maturity. Earnings till then remain largely buffeted, barring HBL’s. ABL and BAHL remain most shielded in terms of earnings decline, whilst BAFL is expected to be the most negatively impacted post July-16.
EFERT is the clear winner, as both 1) reduction in financial charges and 2) increasing attractiveness of high yielding stocks work in its favor. We also raise FATIMA to Buy from Neutral, with a TP of PKR 60.