Heavy lifter: Nestle contributes 26% to total KSE-100 gain

Consumer giant’s stock price jumped 228% in fiscal 2011.

KARACHI:

Consumer giant Nestle Pakistan, which is owned by a select group of investors, contributed 26 per cent to the total gain of the benchmark KSE-100 share index in the outgoing fiscal year.

The benchmark KSE-100 Index gained 28.5 per cent including dividends as the overall capital market environment was depressed.

In spite of this news, there must be only a few investors who have made money on this as volumes declined by 40 per cent to nine-year low in fiscal 2011 and the gains were led by illiquid stocks like Nestle and Unilever, said Topline Securities CEO Mohammad Sohail in a research note.

An illiquid stock is a scrip that does not trade actively, making it hard to sell for cash.

Nestle’s stock price jumped 228 per cent to Rs5,475.1 in fiscal 2011 alone.

Foreign fund managers have accumulated large chunk of the free float, hence shooting the price as the supply is less now, said Sohail.

Second largest stock now

Surprisingly, Nestle has the second largest share in the KSE-100 basket after Oil and Gas Development Company. “Unfortunately, its not traditionally a stock traded by small investors and no brokerage firm covers this stock,” adds the note.

Interestingly, in terms of volumes Nestle is not even among the top 50 stocks.

Aggressive buying by few foreign funds ballooned the stock price by 67 per cent in last 18 trading sessions and 228 per cent in fiscal 2011. The inflated stock price has increased Nestle’s weight to 8.2 per cent from 3.2 per cent a year back in the KSE-100 companies’ basket.

Index gained only 21 per cent excluding Nestle

The Index gained only 21 per cent without Nestle, and for a common investor this is the gain, says the note.

This should be classified as normal return which is in line with the previous 20-year average annual return of 20 per cent, says the note.







Published in The Express Tribune, July 1^st, 2011.