KARACHI, April 29: It is easy to find fault with everything that is remotely concerned with the stock market, when the going gets tough. But look at the rave reviews of analysts and fund managers a week before last. The consensus was: “KSE is trading at p/e multiple of 10x on the prospective 2007 earnings, which is much lower than the regional markets.” As the KSE-100 index touched new highs each day, most experts, except the exceptionally timid, suggested ‘riding the wave’.
The mood has changed with last week’s drastic fall of 665 points in KSE-100 index which closed Friday at 5-week low of 11,342. Every market pundit now lunges forward to claim that “he had said so.” Suddenly, it has dawned upon stock picking gurus that the market was ripe for a “big correction.” A drop in the economic growth to 6.5 per cent from 8 per cent; rise in inflation to 10 per cent and an authoritative demand towards increasing return on deposits of banks, were the factors causing concerns. But those were already there in the earlier week as well. The government did its best to arrest the growth of capital market and succeeded. Was there no other way of pulling cement prices down, than to allow tax free imports, ban exports in an inconsiderate way to destroy the local industry?
An exorbitant penalty on producers and retailers selling cement beyond a fixed price could have done the trick. Whether the imported cement finds its way into the market at considerably lower prices and is well received by users is still to be seen, but for an immediate impact, stock prices in cement plummeted.
Now for PTCL. On September 28 last year, when PTCL had skipped a final dividend, to the disappointment of shareholders, everybody understood there was a genuine reason: The sell off of telecom giant to Etisalat was in the doldrums. That calmed the market. But when the announcement by the Board on April 26 of the company’s nine months to March 2006 results made no mention of a dividend, panic gripped the market.
Granted that the earning per share (eps), which worked out at Rs3, fell short of analysts’ expectations by 10 paisa, but the board’s decision to skip altogether a dividend, where expectations ran as high as Rs5 to Rs6 per share, could not be digested by the market.
“The telecom has not remunerated shareholders even once in last 20 months,” said an irate shareholder. The share in PTCL dipped by Rs8.95 or 14.15 per cent in three days following the results announcement, from Rs63.25 to Rs54.30. Since the stock carries a heavy weightage of 7.12 per cent in the index, that plunge in price translated into 101 points dip in the KSE index.
Most other corporate announcements also fell below market expectations. But none had the weight to drag the market down as PTCL and none of them had the capacity to dampen as much the market sentiments as the privatised telecom giant.
Actual eps: JS Capital Market’s expected eps and deviations in regard to some of the major stocks were, respectively, as follows: Askari Commercial Bank Rs2.06 — Rs2.70 — (-24pc);
As can be seen OGDC, the stock with the greatest 24 per cent weightage in the index, posted surprising higher profits, but that did not help salvage the situation. Did adverse comments on Pakistan’s equity markets by Merrill Lynch intensify the market plunge on Friday? Opinions are divided.
The World’s leading brokerage firm strategist recommended a trimming of holdings in Pakistan. Foreign portfolio investments as on April 26, 2006, was showing a negative outflow of $30.5m and total inflow for FY06 is $356m. It is interesting to mention that in the month of March foreign investors withdrew $79.4m from Pakistan market. Everyone knows that foreign investment drains out as quickly as it flows in. Was the release of Report (intentionally or unintentionally) ill-timed? It came up just at the middle of an intense selling pressure on Friday. The Report advised investors to trim their holdings in Pakistan by about two-thirds due to the possibility of lack of positive news ahead of the budget (on June 5).
It cut the weightage on Pakistan equities from 3 to 1 per cent. Did that hasten the outflow of foreign investment? A few major players disagree. They argue that the recognized weightage on equities is Morgan Stanley Composite Index (MSCI). “A 3 per cent weightage in that index means investment of nearly $10 billion,” says a market maker, adding, “Does current foreign investment of $400 million in Pakistan market even fall anywhere near that figure?” Such recommendation, therefore, did not impact the market, says he.
