The central bank of Pakistan in yesterday’s decision announced the rate cut of 150 basis points, taking the policy rate down to 20.5 percent w.e.f. June 11, 2024.
The market was already expecting a rate cut as the benchmark lending rate of 6M KIBOR was trading at 20.68 percent as of June 10, 2024, 132 bps lower than the policy rate. However, the 6-month KIBOR is further down today by 56 basis points and is currently trading at 20.12 percent as of 11:25 am, according to Bloomberg.
Similarly, the 6M T-bill is currently trading ~68bps lower than last day’s closing of 20.38 percent to 19.60 percent.
Banks
According to Topline Securities, banks will get hit on their returns on current account deposits which will result in narrowing of their spreads. On average, expect banks to have a negative impact of 8 percent as a percent of their profits. Banks like UBL Bank (UBL) and National Bank (NBP) have high repo exposure and this caused negative NII growth of 20 percent and 11 percent, respectively during 102024. This decline in interest rates will be positive for these banks.
Cement: Due to capital intensive nature of business, cement companies are one of the highly leveraged at PSX due to their frequent expansions. The sector is currently trading at a Debt to Equity ratio of 0.53x. Theoretically, among the companies, DG Khan (DGKC), Pioneer Cement (PIOC), Bestway Cement (BWCL), and Fauji Cement (FCCL) to have a positive impact of 3-5 percent per annum.
Steel: The steel sector is currently trading at Debt to Equity ratio of 0.70x. Amongst the companies, companies like Mughal Steels (MUGHAL), Agha Steels (AGHA), and Amreli Steels (ASTL) will benefit in a range of 5-22 percent.
Textiles
The textile sector has a debt-to-equity ratio of 0.89x. This sector is amongst the top beneficiaries as their fixed rate/subsidized loans were also repriced to market rates in Dec 2022. That said, companies like Gul Ahmed (GATM), Nishat Chunian (NCL), Nishat Mills (NML), and Interloop (ILP) will get benefits of 3-6 percent.
Pharmaceutical: Select companies in the Pharma sector are on high leverage like Searle Pakistan who acquired OBS Pharma on a leverage buyout. Searle Pakistan (SEARL), Ferozsons (FEROZ), and AGP Pharma (AGP) to get a benefit of 10-35 percent to the bottom line, Topline added.
