KSE falls by 0.8% as inflows decline, institutions sell

KARACHI: The stock market’s latest rally came to a halt as the benchmark KSE-100 index fell by 0.8 per cent, 102 points, during the week ended January 21.

Profit-taking was witnessed throughout the week as investors cashed in on gains before the start of earnings season next week.

Activity also picked up during the week as volumes climbed 25 per cent and rallies were witnessed in specific stocks as investors cherry-picked on expectations of higher-than-expected payouts. But overall the market underwent a long overdue correction and shed value after a bull-run which lasted almost three months.

Foreign inflows declined by 50 per cent to $14.7 million while local mutual funds and banks sold $11.8 million worth of stocks during the week.

The market can be expected to decline further as investors have already factored in high earnings and payouts for most scrips and lower-than-expected results from some major companies are likely to lead to sell-offs.

Market heavyweights from the oil sector - Pakistan Petroleum Limited, Pakistan Oilfields and Attock Petroleum, and from the fertiliser sector - Fauji Fertiliser and Fauji Fertiliser Bin Qasim are due to make their earnings announcement in the coming week.

The oil sector largely underperformed on reports of closure of Maramzai field and also due to decline in international crude prices. However, the fertiliser sector rallied on talk of a better-than-expected payout on the back of high urea prices in the second quarter of 2010-11.

Another worrying thing for investors was the fact that the State Bank of Pakistan (SBP) will announce monetary policy for the next two months along with the discount rate in the coming week. The discount rate currently stands at 14 per cent after three successive rate hikes in as many announcements over the last six months.

Yet, the rate hikes have so far failed to achieve the intended target of curbing inflation, currently hovering above 15 per cent and reducing government borrowing from the SBP. A further rate hike cannot be ruled out, although most analysts maintain that the central bank will defer a rate hike this time around.

Average daily volumes for the week stood at 232 million shares traded per day, up by 25 per cent over the previous week. Average daily value of shares traded, on the other hand, declined by 6.3 per cent to Rs9.36 billion, indicating the increase in activity was more focused on second and third tier stocks. The market capitalisation declined by 0.8 per cent to Rs3.36 trillion during the week.

What to expect?

With the earnings season to go into full swing, the market is likely to witness stock-specific rallies and profit-taking in the coming week. Foreign inflows will play a key role in determining the direction of the market during the earnings season.

The impending SBP discount rate announcement will also be playing in the heads of investors and volumes can be expected to dip in the run-up to the announcement. Analysts at KASB Securities believe that a correction should be expected and investors should play it safe in the coming week.

Monday, January 3

The local bourse continued its positive momentum and closed at a 31-month high amid healthy foreign inflows. The Karachi Stock Exchange benchmark 100-share index ended 1.18 per cent or 148.4 points higher at 12,681.94, its highest close since June 2008.

Tuesday, January 4

After enjoying a 415-point increase in the last four sessions at the stock market, investors preferred to book profits at inflated levels. The Karachi Stock Exchange benchmark 100-share index ended 0.19 per cent or 23.78 points lower at 12,658.16.

Wednesday, January 5

Stocks closed down in a volatile session with the index swaying between red and green at regular intervals, according to analysts. The Karachi Stock Exchange benchmark 100-share index ended 0.64 per cent or 80.55 points lower at 12,577.61.

Thursday, January 6

Bears continued to dominate proceedings at the stock market on Thursday with selling pressure in most of the blue chips and other noticeable stocks. The Karachi Stock Exchange benchmark 100-share index ended 1.32 per cent or 165.74 points lower at 12,411.81. end Thursday’s trade at 12,323.47 points.

Friday, January 7

Stocks closed marginally higher following profit-taking in the final hours of trading. The Karachi Stock Exchange benchmark 100-share index ended 0.16 per cent or 20.04 points higher at 12,431.91.

Published in The Express Tribune, January 23^rd, 2011.