AS the financial year 2011-12 drew to a close on Saturday, investors looked back over at the performance of the Karachi stock market, which saw the main KSE-100 index gain 10 per cent, climbing from 12,496 points at the start of July 2011 to 13,800 points at the end of June 2012.

In comparison to a gain of 27 per cent in the previous financial year, investors in stocks seem to have seen a year of virtually lost opportunity. Yet the outcome for the capital market in the year could have been the worst.

In the first half of the year (July-Dec) the index had lost over 9.2 per cent. However, a spectacular rally in the second half (January-June) yielded gain of 20 per cent. But for the second half gains, the market would have ended the year in the red.

The market was able to recoup the loss of 9.2 per cent of the first half and still gain 10 per cent mainly on account of one major development. The grant of amnesty in April by the government through a Presidential Ordinance that assured investors that ‘no questions would be asked about the source of money, whether documented or undocumented (that some people like to call ‘black money’) invested in stock market, for two years up to June 30, 2014.

Many brokers may vehemently disagree that the major reason for the equity market turnaround to the North was the amnesty contained in the reformed capital gains tax (CGT) scheme, yet the figures speak for themselves.

Sector-wise performance showed that cement stocks stood out as the leaders in FY12 while shares on the oil and gas sector were the laggards. Cement stocks outperformed the KSE-100 index by an average of 78 per cent. By contrast, oil and gas sector under-performed the market by around 12 per cent. Banks fared slightly better, doing better than the index by three per cent.

Yet, a cursory glance at the figures shows that out of the gain of 78 per cent posted by the cement sector in FY12, as much as 73 per cent accrued in the second half of the year. Incidentally all other sectors on the KSE had produced negative returns in the first half. Autos, electricity and oil & gas produced about an equal negative yield of four per cent in the first half, which was wiped off by gains of 24 per cent in autos, 19 per cent in electricity and three per cent in oil and gas.

And the biggest turnaround was noted in the financial services sector which amassed phenomenal gain of 110 per cent in the second half compared with a loss of 21 per cent in first half, to end the year with net gain of 65 per cent. Banks gained 12 per cent for the full FY12, the contribution coming from the second half gain of 32 per cent that erased the negative return of 15 per cent of the first half.

Having to grapple with the eurozone crisis at home, foreign fund managers, quit the emerging and frontier markets. Pakistani bourse also saw net outflow of over $110 million during the outgoing fiscal year. But stock broker Haji Ghani Haji Usman is sanguine: “Foreign investment is, as everyone realises, hot money which can go out as quickly as it flows in”, he says. Yet, he pointed out that all the shares offloaded by foreign fund managers, were quickly picked up by local institutional investors and high-net worth individuals.

For most part of the year, retail investors would not dare step into the market for ambiguities over the CGT. It was only after the grant of immunity in April, which was latter made part of the Finance Bill 2012 that brought back small investors, who had turned their back on the market after the Great Crash of 2008. It gave a boost to the average volume, which shot up by 242 per cent to 204 million shares per day. Brokers who had seen the volume drop to a nine-year low in FY11, which made a deep dent to their commission income, had little reason to complain.

But for all that the activity in the outgoing year was skewed towards second and third tier stocks, evident from an improvement of only 80 per cent in average traded value to $57.8 million, against 242 per cent increase in terms of volume of shares traded.

The spectacular rise in prices of what market calls ‘second and third-tier stocks’ was due to the entry of retail investors. Translated the low-tier shares mean stocks mainly of the dead or dying companies that were worth a few paisas or nothing. Most analysts fear that when the tables are turned it would be the small investors, holding penny stocks, who would suffer.

However, there is no dearth of optimists. Atif Zafar, an analyst at the brokerage house JS Global admitted that in FY12, the KSE-100-index had recorded a relatively muted gain against an average increase of 32.1 per cent in the preceding two fiscal years. However, he pointed out that the local bourse had outperformed the regional markets by an average of 11.4 per cent.

Looking at the low investment interest, issuers, who could have mobilised cheaper funds from the capital market, stayed away, so that only four Initial Public Offerings (IPOs) were floated in FY12, compared to last decade’s average of seven annual IPOs. Market participants with bullish frame of mind say that most blue-chip scrips that provide double-digit dividend yields are still trading on a low multiple of 6-7 times the forward earnings, which they say could mean that it could still be a long way to go before the summit is reached.