Strong rally triggered in stocks on IMF loan approval

KSE 100-Share Index Fluctuations. - Chart by Rehan Ahmed

KSE 100-Share Index Fluctuations. – Chart by Rehan Ahmed

DAWN, 09th SEPTEMBER 2013:-

Stocks remained bullish for most part of last week at the Karachi share bazaar, where the KSE-100 index gained 605 points or 2.73 per cent and recovered the 554 points it had lost in the earlier week.

The imminent possibility of a US military strike on Syria was pushed on the back burner, as investors kept their fingers crossed earlier in the week over the IMF executive board’s decision on a $6.6 billion, three-year Extended Fund Facility (EFF) loan for Pakistan.

Investors were also spooked by cracks in the pricing and quota arrangement among cement producers, after the biggest player opted out of the manufactures’ lobby, the All Pakistan Cement Manufacturers’ Association. Problems for the industry were confounded following the announcement by the second largest producer, D.G Khan Cement, to set up a new 2.6 million tonne cement producing plant in Hub.

The bearish spell over the earlier two weeks was reversed last Thursday following the approval of the IMF loan, but only after a bit of drama that is so familiar at the country’s bourses.

Those in the knowledge of things affirmed that a group of major players spread word that IMF policy documents were ambiguous and may result in an interest rate hike in the State Bank’s upcoming monetary policy announcement.

These players also raised fear among small investors of a possible break-up of the cement makers’ cartel, while alluding to the start of a price war among the producers. Leveraged small investors and weak holders went into panic selling, so that stock prices across the board, and mainly those in the cement sector, hit the pit.

Having made a killing, the big players then triggered a rally by passing around soothing words that details of the IMF agreement contained softer conditions and thus allowed for status quo on the discount rate, and that the cement producers were about to hold talks for peace.

Most stocks then rebounded from their lower to upper ‘circuit breakers’. Some knowledgeable market men said that the act of big players might have been unethical.

Meanwhile, foreign fund managers were noted to have withdrawn $1.1 million last week. This compares with an inflow of $2.3 million in portfolio investment in the earlier week.

The Pakistani bourse has produced a return of 34.67 per cent in 2013 to-date, outperforming the MSCI Emerging Market index, which has lost 10.19 per cent in the year.

Average daily volume during the week declined 4.51 per cent to 194 million shares from 204 million shares traded in the previous week. The average daily trading value decreased by 4.9 per cent to Rs7.22 billion from Rs7.59 billion.

The top five shares that witnessed highest trading during the week were those of Fauji Cement Company, Bank of Punjab, Maple Leaf Cement, PTCL and D.G Khan Cement.

The value of all shares traded on the KSE — market capitalisation — recovered Rs66 billion in the week to reach Rs5.580 trillion, from Rs5.514 trillion at the end of the prior week.

The leading gainers during the week included Nishat Chunian Ltd, PTCL, Nishat Mills, Dawood Hercules, Fauji Fertiliser Bin Qasim, Rafhan Maize, TRG Pakistan, Engro Corporation, Lucky Cement and National Bank of Pakistan.

On the flip side, the heaviest losses were seen in the stock prices of OGDCL, D.G Khan Cement, United Bank, LotChem, Honda Cars, Mari Gas, Siemens Engineering, Nestle Pakistan, Netsol Technologies and Clariant Pakistan.

Financial results: Two important financial results that came up at the fag end of the results season were from D.G Khan Cement (DGKC) and Pakistan State Oil (PSO).

DGKC announced net earnings of Rs12.56 for FY13, up 34 per cent YoY. The directors also declared a cash dividend of Rs3 per share.

Pakistan State Oil, the biggest oil marketing company in the country, turned in it’s highest-ever revenue for the year ended June 30. But the company paid Rs2.50 per share in a cash payout, which was much below market expectations.

Future outlook: In the spotlight in the upcoming week would be the central bank’s monetary policy statement (MPS) announcement, which is scheduled for September 13.

Most analysts and senior market participants believe that Pakistan’s letter of intent to the IMF and its memorandum on economic and financial policies (MEFP) point to the possibility of a postponement in the interest rate hike cycle. This is believed to potentially extend the bullish momentum in stock prices into the coming week.

However, analysts at KASB Securities held a cautious view. They observed that with a handful of results (Lucky Cement, Nishat Power and Nishat Chunian Power) still to be unveiled, it would scarcely be surprising to see a further slowdown in investor activity.

Apart from global geo-politics, the MPS outcome and details on the IMF’s terms and conditions for the loan should clarify the outlook on interest and exchange rates. “Given the lack of market triggers at the moment, we advise a cherry -picking approach to portfolio construction,” the analysts said. —Dilawar Hussain

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