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KSE-100 index crosses 23,000-level

September 16, 2013

PERHAPS for the first time in its long-cherished history, the Karachi Stock Exchange would be remunerating its 200-strong broker fraternity with a dividend amounting to Rs0.5 million for each broker, according to an insider.

While it would be petty cash for most enriched stockbrokers, the Rs100 million total payout would possibly flow into the stock market, and thus help replenish liquidity. The KSE would also be releasing its annual report and accounts for the year ended September 30 by early next month.

Meanwhile, a major political development that buoyed sentiments last week was the colourful farewell accorded to President Zardari — the first president to vacate the presidency ever complete his tenor. It set the tone for the market, for it signalled progress of the democratic process.

Investors were also encouraged by the law enforcement agencies beginning a crackdown on criminal elements in the commercial hub of Karachi.

On Friday, the prime minister announced the proposed sale of 26 per cent stake in the national flag carrier, the Pakistan International Airlines, which rekindled hopes of the start of the privatisation process of state-owned enterprises.

Meanwhile, bulls consolidated gains at the Karachi stock market last week, with the benchmark KSE-100 index adding 402 points to close at 23,168 points. The index scaled the 23,000 level after a gap of 11 weeks. In the year to-date, the Pakistani bourse has provided a return of 37.05 per cent — one of the highest in regional and global markets.

The investor sentiments were also dictated by the release of the first tranche of the new IMF loan.

Meanwhile, the air was thick with suspicion on Thursday that perhaps a slight increase in the policy rate was on the cards, which sent the leveraged textile and cement stocks scurrying to the floor. Yet on Friday, optimism returned over the analysts’ and brokers’ consensus forecast of a ‘no change’ in the central bank’s monetary policy, which helped the leveraged companies regain their stock values.

However, the State Bank surprised expectations by announcing a 50bps cut in the policy rate after trading hours on Friday.

Meanwhile, investors’ concerns over the breaking apart of the pricing and quota arrangement between cement producers, after the biggest player, Lucky Cement, walked out of the manufactures’ lobby, the All Pakistan Cement Manufacturers’ Association (Apcma), were put to rest as news spread of an informal meeting scheduled for early this week by cement producers to bring Lucky back to the fold.

Back at the exchange, foreign fund managers were noted to have withdrawn $5.6 million in the last two trading sessions. But over the week, the market witnessed a net inflow of $2 million.

Average daily volume stood at 239 million shares during the week, representing a strong growth of 22.93 per cent over the average daily turnover of 194 million shares in the earlier week.

Market capitalisation eroded by Rs96 billion to Rs5.484 trillion in the week, from Rs5.580 trillion in the previous week.

The top-five volume leaders last week included Fauji Cement Company, Bank of Punjab, PIA, Maple Leaf Cement and DG Khan Cement.

The leading gainers during the week included Honda Cars, EFoods, Sui Northern Gas, Sui Southern Gas, Habib Metropolitan Bank, Pace (Pak) Limited, Jahangir Siddiqui & Co, GlaxoSmithKline and Pakistan Tobacco Company.

The biggest losers during the week were Habib Bank Limited, Engro Corporation, Hub Power Company, Allied Bank Limited, United Bank Limited, Colgate Palmolive, Javedan Corporation and Pak Services.

Future outlook: Most market participants worry that the unexpected increase of 50bps in the discount rate by the SBP could induce negativity in the equity market when it opens this week.

“However, this development bodes well for the banking sector, as pressure on spreads should ease, which is likely to allure investors,” say analysts at KASB Securities. In addition, cement stocks may remain volatile, as no clarity has yet emerged over the resolution of conflicts between Apcma members.

Raza Jafri, head of research at AKD Securities, affirmed that with the announcement of a 50bps hike in the discount rate, valuation compression across the market could signal bearish sentiment in the coming week.

In this regard, leveraged sectors such as cement, textile and selected fertilisers could potentially remain under pressure. However, the rate hike improved the outlook on the banking sector, he added.