KSE-100 index closes flat due to lack of activity

KARACHI: Lack of activity in the stock market resulted in the KSE- 100 index closing flat at 10,272 points as positive news flows dried up and concerns about the upcoming budget kept the investors on the sidelines.

The only positive to come out of the index closing flat was the end to the declines witnessed in the previous two weeks, during which the benchmark index dropped 3 per cent. Foreign inflow remained the most important factor during the week as total foreign buying dropped slightly to $12.4m and was a major cause of concern for local investors.

Total foreign buying has been declining steadily over the last few weeks. But, unlike previous weeks, there was no sudden outflow of foreign money during the last few sessions and was a positive sign. Global news also continued to factor in after the announcement of a $962b bailout package for the Eurozone countries triggered activity in global markets, but the KSE index did not witness any major activity as a result. Nonetheless, the resumption of activity in global markets is viewed positively by local investors.

The effect of the bailout package was dampened by apprehensions pertaining to the International Monetary Fund’s disbursement of the fifth tranche of $1.2b to Pakistan. The finance adviser, Hafeez Shaikh also hinted towards a further increase in power tariffs to meet IMF guidelines and this was received negatively by investors.

There was also lack of news from the corporate front which contributed to the lacklustre activity at the market and the only major news came from Fauji Fertiliser Bin Qasim, which announced the recently announced Rs75 increase in fertilizer prices would not be sufficient to cover the losses due to reduced gas supply to it. The State Bank of Pakistan also revealed monetary figures which did not bode well for the market. The allimportant Consumer Price Index (measure of inflation) stood at 13.26 per cent which was the second-highest reading for the current fiscal year. The revelation means that the central bank will be highly unlikely to reduce the discount rate.

On a positive front, though, the trade gap continued to narrow due to increasing exports and the deficit stood at 13.6 per cent for the month of April. Remittance figures were also higher and total cumulative remittance for the fiscal year now stand at $7.3b. During the week, average volumes declined sharply by 27.5 per cent to 94m shares per day. Furthermore, most of the meagre activity was restricted to second and third-tier stocks and interest in blue-chip stocks remained wane, which further reduced the impact on the market on a whole. Looking forward, analysts at KASB Securities believe that two events are likely to shape the outcome of the market in the near-term.

First of all, the IMF meeting which is being held over the weekend will determine the fate of the fifth tranche, and additionally it will also clarify the government’s position on contentious issues like the implementation of the Value- Added Tax and further power tariff increases. Secondly, the State Bank of Pakistan is due to announce the monetary policy for the next two months on May 24, and it will also provide clarity about the future monetary stance of the central bank.

Published in the Express Tribune, May 16th, 2010.