Mutual funds get wealthier, but remain net sellers

Sell shares worth $42m in July; cement, OMCs see outflow


Salman Siddiqui August 19, 2018
Representational image

KARACHI: The mutual fund industry, a key player at the Pakistan Stock Exchange (PSX), has received higher investments from corporate and individual investors, but continues to remain a net seller as the volatile situation persisted in the run-up to the general elections.

“Assets under management (AUM) for the open-end mutual fund (OEF) industry increased 4.8% month-on-month to Rs595 billion in July 2018, largely driven by a growth of 11.4% in equity funds (meant for the stock market),” Elixir Securities’ analyst Syed Tahseen stated in a brief to his clients.

Liquidity position of equity funds (conventional and Shariah-compliant) increased to Rs25.1 billion (11% of AUM) as of July 2018 compared to Rs18.6 billion as of June 2018, he said.

Besides, size of the two equity-based funds cumulatively surged 8% to Rs230 billion (38.65% of AUM) in the month compared to Rs213 billion (37.5% of AUM) in the previous month of June.

FDI inflow slows down, prompting policy revision calls

However, they sold shares worth $42 million (Rs5.20 billion) “with the selling concentrated in cement and oil marketing companies’ (OMCs) sectors,” he said.

The net selling comes during a time when the benchmark KSE-100 Index posted a 1.9% increase during the month “while average return for conventional equity funds stood at 1.9%.”

Similarly, Shariah-compliant equity funds returned an average of 1% during July 2018, he said.

Looking at the stock-wise exposure, conventional equity funds were most concentrated in Pakistan Petroleum Limited (PPL), Oil and Gas Development Company (OGDC) and Habib Bank Limited (HBL).

Within Shariah-compliant equity funds, OGDC, PPL and Engro continued to be the most common bets, in line with last month. The breakup of shares sold, worth $42 million, explained the mutual funds sold cement stocks worth $12 million in the month, offloaded OMCs’ shares worth $9 million, oil and gas exploration companies (E&Ps) ($4 million), independent power producers of ($4 million), technology and communication of ($2 million), textile of ($1 million), food of ($1 million) and sold shares in other sectors worth $20 million, the analyst said.

On the other hand, mutual funds bought shares worth $10 million in the single financial sector, he added.

In contrast to mutual funds’ activities, the benchmark KSE-100 Index showed that technology and communication as well as cement stocks posted a gain of 6% each in the month, financials and fertilisers surged 5% each and independent power producers advanced 3%.

On the other hand, food stocks dropped 4%, textile and E&Ps fell 2% each, while OMCs remained unchanged.

The mutual funds have remained net sellers of shares at the PSX for the last one year, as a poor response from foreign investors after PSX’s reclassification to MSCI Emerging Markets Index, higher tax rates on capital gains, and political noise ahead of the elections remained negative triggers.

PSX, equity funds during FY18

Accordingly, they (mutual funds) emerged as net sellers worth $35 million during fiscal year 2018.

During the year, they sold cement stocks worth $57 million, OMCs worth $7 million, food at $3 million, textile at $1 million and sold stocks worth $173 million in other sectors, according to the brokerage house report.

On the other hand, they bought E&P stocks worth $82 million, financials $72 million, fertilisers $31 million, independent power producers $15 million and they bought technology and communication stocks worth $7 million during the year.

In comparison, the KSE-100 Index exhibited a 33% increase in E&P, fertiliser 11% and food stocks increased 8%. Cement stocks dropped 42%, textile 22%, technology and communication 19%, independent power producers 17%, OMCs 11% and financial stocks dropped 10%.

Published in The Express Tribune, August 19th, 2018.

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