Stocks gain 22pc in just 13 weeks: KSE index at about 12,000
By Dilawar Hussain
KARACHI, April 8: The Karachi Stock Exchange 100-share index just stopped short of the coveted mark of 12,000 points by as few as 64 points on Friday. Looking at the mood of the bulls, that level is likely to be surpassed early on Monday. What next?
The market has gained 22 per cent in 13 weeks this year and 53 per cent since the same time last year. That is in spite of the stock market’s maximum single day decline of 468 points in March this year.
The rise of the equity market is phenomenal. But there is no waving of flags of the “best performing market in the world” and no one in authority is trying to elbow his way forward to claim credit for the meteoric rise of Pakistan’s equity markets. One thing that the stock crisis of March 2005 did was to pull all such flags on half mast. And just when small investors who had suffered losses of unaccounted billions due to the 25 per cent drop in prices were looking around to ascertain who had done it, every finger pointed in all directions except towards himself.
But that is history. The Task Force report on the March 2005 crisis appeared and disappeared. The perpetrators had made billions of rupees and someone in authority cut a cruel joke on a TV channel a week ago, when he denied that fine for an offence was as low as Rs5,000. “It has been raised to Rs500,000”, he boasted.
Most market pundits, nonetheless, believe this to a genuine rally rooted in improved fundamentals of the country’s economy; robust profitability of corporate sector and a good outlook for the future. The bull-run that started in the aftermath of 9/11 incident is into the fifth year. In January this year, most gurus were sanguine that the market would continue to maintain a firm posture this year. But where the market was expected to be by the end of the year, it has reached in just three months.
“About the index target, we at that time (in January) communicated that KSE index has the potential to reach 12,000-12,500 level within the next 12-months, thereby generating a 21-26 per cent return in local currency terms (19-24pc in dollars).”, say analysts at Jahangir Siddiqui Capital Markets (JSCM).
They observe that to arrive at the index target, “We analyzed the past trend of market price-to-earnings ratio (PE) by calculating Pakistan market theoretical PE and also evaluated regional PE multiples to arrive at the sustainable PE level of 11x.” The analysts pointed out that the last 10-year average annual return from Pakistan equities was also in line with their projected return of 21-26 per cent. That was based on sustainable market PE of 11x and considering the target prices of market moving shares.
Banks, cement, oil& gas, technology & communications and fertilizers have been at the forefront of the rally, almost in that order. Where the top performers took a breather, second tier stocks such as POL; FFBL; Fauji Cement; Engro; KESC; NML; SNGPL; Telecard; PGF and smaller banks, carried the rally ahead.
Going forward, most analysts expect the upcoming corporate financial results to be important factor in determining the direction of the market. The end of the PTCL privatisation fiasco after a relentless chase of eight months, the bidder Etisalat having finally paid up $1.4 billion; positive sentiments in oil and gas exploration companies; oil marketing companies and refinery sectors (rising oil prices); banking sector (widening spreads) and cement sector (soaring prices); privatisation related news in the gas distribution companies (SNGPL and SSGC) should all add up to keep investors’ interest alive in the stock business.
Foreign investment in equities had better be set aside, for it takes the flight home, as quickly as it had arrived in the market. But there is the worrying thought of the economic indicators showing some signs of weakening and the high multiples in some equities. Timid among the stock strategists suggest caution, but others wonder where, if not in equities, would surplus funds go. Gold is at its historic high record price; real estate market is in a limbo and banks are gobbling up depositors’ money, handing out a thin single digit return that is not nearly half the current rate of inflation.
