By: Iqbal Dinani
BMA Capital Management Ltd.
Monetary Policy Outlook: Given softening domestic inflation, bearish trend in global commodities, lackluster exports and weak private sector credit demand, we believe monetary easing cycle to continue as we foresee the SBP reducing the DR by 100bps in the upcoming monetary policy in Jan’15. Latest CPI figure stood at 4.3%YoY in Dec’14, bringing average inflation to 6.1% as against 8.9% in 1HFY14, translating into +ve real interest rate of 340bps.
Going forward, we expect inflation to remain benign during 2HFY15 at ~6.0% due to i) lower imported inflation on account of declining fuel cost & stable exchange rate and ii) stable food prices. Further, swift accretion in SBP reserves has strengthened balance of payment position. From market’s vantage, notable shift in monetary policy stance and resumption of reform agenda (alleviating energy and security concerns) are likely to bode well for investor sentiments. Leveraged plays are likely to garner attention where we highlight textile (GATM, NML, NCL, KMTL), Fertilizer (Engro, EFERT), Cements (FCCL, MLCF) and PSO as potential outperformers.
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