KSE-100 index climbs 0.8 per cent amid falling volumes

Political uncertainty, margin trading and corporate results dominate proceedings.

KARACHI: The stock market recorded slight gains as the benchmark KSE-100 index climbed 0.8 per cent or 98 points during the week ended February 18. The week was shortened to four days on account of the 12th of Rabi-ul-Awwal holiday on Wednesday.

Investors chose to remain sidelined as volumes fell 22 per cent due to various reasons. The week started off on a dull note primarily due to the negative spillover effect from the previous week.

Market interest revived on Tuesday on announcement of the discovery of oil in Tal block, which led to interest in the oil sector and small rallies were witnessed in Pakistan Petroleum Limited and Pakistan Oilfields.

On the same day, the Karachi Stock Exchange board of directors approved rules for the Margin Trading System (MTS), further confirming that the new mechanism will come into force at the bourse before the end of February.

The news flows led to a broad-based rally on the KSE-100 index, which managed to climb 1.1 per cent on Tuesday alone. The remainder of the week was rather uneventful, with the exception of corporate results which triggered stock-specific activity.

Foreign inflow, which had dried up to $0.2 million in the previous week, showed a recovery and total foreign buying stood at $3.5 million for the week. The bulk of this buying came on Thursday and Friday, as there was a net outflow of foreign investment in the first two days of the week.

The Raymond Davis case continued to unravel, with the visit of Senator John Kerry to Pakistan. Many prominent politicians spoke out against cutting aid to Pakistan, terming the measure to be counter-productive, thus easing fears that the economy could take a hit due to US aid cuts, stemming from the issue.

The highlight of corporate results was undoubtedly Engro Corporation’s better-than-expected profits, climbing 76 per cent over the previous year with earnings per share (EPS) of Rs20.72. Engro’s stock climbed 4.4 per cent during the week and also triggered a rally in fertiliser stocks, with Fauji Fertiliser climbing 2.7 per cent.

Kot Addu Power Company (Kapco), a favourite of risk-averse investors, also impressed the market by announcing a dividend of Rs3 per share that triggered a rally in the stock, which climbed six per cent during the week. The announcement also created interest in Hub Power Company’s (Hubco) stock, as the company is set to announce its results in the coming week.

Average daily volumes for the week stood at 74 million shares per day, down 22 per cent over the previous week. Average daily value of shares traded, on the other hand, increased by 2.3 per cent to Rs3.16 billion, indicating that activity was moving towards first tier, blue-chip stocks.

The index’s market capitalisation increased by 0.7 per cent to Rs3.26 trillion during the week.

What to expect?

Heading into the closing week of February, much of the interest is expected to be focused on the re-introduction of Margin Trading System, which has been eagerly awaited by investors since June last year.

Furthermore, corporate earnings announcements will continue in the coming week, with Indus Motors, United Bank Limited and Hubco being eyed carefully by investors. Overall, the market seems to be in a correction phase and investors should choose to play safe in coming weeks.

Published in The Express Tribune, February 20^th, 2011.