LFO resolution tips send stocks on way to recovery
Positive developments on the LFO issue after President’s optimism of an early resolution, and news from the privatization front reinforced the investor-perception that worst may be over and the market is now well on its way to a sustained recovery.
President’s optimism that some more flexibility on the part of contenders of power could resolve the contentious issue of the LFO was considered a signal to come to terms with the MMA before its deadline of December 18.
For the second week in a row, the Karachi stocks maintained their upward thrust on active short-covering in some blue chips and secondliners at the lower levels. The traded volumes in each session fell far below a respectable total, signalling the stockholders’ disinterest.
The breach of the psychological barrier of 3,900 points, however, has raised the hopes that the KSE 100-share index has resumed its upward thrust to achieve its last glory. It was last quoted at 3,976.12 points as compared to 3,852.79 points a week earlier, up by 122.27 points or about 6.5 per cent, adding Rs25.691 billion to the market capital at Rs849.131bn.
The question is being asked whether it will maintain its upward thrust during the next two sessions preceding the Eid holidays to stay firm above the 4,000-point level. Indications are that it could after President’s statement that the LFO issue may be resolved soon after he personally holds talks with the MMA or other opposition leaders on the issue.
Its recovery was widely welcomed but analysts are divided over its future direction and doubt it could touch the all-time peak level of 4,604 points — touched in September. They base their assessment on the developing political scenario in the backdrop of a standoff on the LFO and the opposition’s planned anti-government drive after Eid.
A lot of money will remain tied to the “green shoe option” of another 2.5 per cent shares of the OGDC, with the first IPO massively oversubscribed by 6-time or Rs25 billion. Until they are back in the market, trading may remain insipid.
During the holy month of Ramazan, daily turnover figures do shrink as a formidable section of investors curtail their daily operations but not as low as 63 million shares, far below the tally of an active scrip in a session.
Political constraints in the backdrop of opposition plans of anti-government movement during the post-Eid weeks may be one of the factors behind the falling daily volumes but what seems to be the chief reason behind the slowdown was some recent central bank steps to restore sanity to stock trading. Check on bank investment in shares and switchover from the existing badla business to margin financing by the banks are some of these.
Leading financial institutions are analysing their likely impact on their profit margins on long-term basis before launching new share portfolios. Hence low volumes.
News from the political front, notably one-month deadline set by the MMA for the government to present the draft constitutional bill on the LFO are not that encouraging. The talks of agitation is gaining momentum but the market seems to be responding to its some basic fundamentals including its oversold position.
The much-needed lead was provided by the presence of the financial institutions, which opted for strong buying but there was no matching selling from any quarters. Trading volume, therefore, remained light.
Energy shares led the market advance followed by reports of further increase in the petroleum price and expectations of higher earning by both the PSO and the Shell Pakistan. Reports that the newly commissioned 5th refinery set up in the private sector near Karachi has resumed commercial operations and has started delivery of petroleum products to the PSO for onward sales at the retail outlets also aided the sentiment.
A lot of cash amounts are now free after the closure of the OGDC’s sale offer and that has found its way again in the share business though on selected counters, lifting prices of blue chips further higher. Its share came in for strong buying and accounted for about 160 million shares during the post-IPO trading.
An air of optimism prevailed in the rings amid market talk that its issue, being the largest-ever public offering in the KSE history, was massively oversubscribed pending the 2.5 per cent green shoe option, analysts said.
“Although official subscription figures are not available, it could be wellover Rs20 billion on the lower side, signalling that there is no dearth of floating liquidity”, they said.
Its share value currently ruling around Rs41 against the face value of Rs10 after having touched the pre-IPO high of Rs44, may find its real worth after the actual subscription figures are released by the bankers, they added.
However, one thing is certain that its entry into normal trading list will significantly add to the depth of the market and in turn its viability during bad times.
“The continuation of its upward thrust will largely depend on the penetration of the resistance level of 3,950 points, which has coincided with the exhaustion of the previous peak levels”, says a leading analyst commenting on the snap rally in a terribly low volume.
Leading gainers were led by the Siemens Pakistan, after the announcement of final maintained dividend at the rate of 130 per cent or Rs13 per share, up Rs20 followed by Millat Tractors, Al-Ghazi and Shell Pakistan, and many others including secondliners.
Other good gainers were led by the IGI, the PSO, Javed Omer, Dawood Cotton, the BOC Pakistan, Abbott Lab, Crescent Steel, Dawood Hercules, Pakistan Services and the Packages.
Losers were led by the J.W.D.Sugar, the EFU General, Atlas Battery, Arif Habib, Exide Battery, Glaxo-SKF,Parke-Davis and the Dreamworld, while many others finished with fractional fall.
FORWARD COUNTER: Speculative issues on the forward counter also staged a broad rally under the lead of the PSO, which recovered Rs13 and was last quoted at Rs271. The Hub-Power and the PTCL also posted gains ranging from 95 paisa to Rs1.30 and so did the Engro Chemical, the FFC-Jordan Fertiliser, Fauji Fertiliser, the MCB and Nishat Mills.
The OGDC, which made its debut on the forward counter was massively traded in each session amid either-way movement but finally managed to finish with a modest gain of Rs1.05 at Rs40.60 after at one stage touching the peak of Rs41.40.—Muhammad Aslam
