Weekly review: Worsening law and order takes its toll on bourse

KSE-100 index drops 0.8% after a fresh spate of violence in Karachi.

KARACHI:

The deteriorating law and order situation in Karachi, the commercial hub of the country, took its toll on the stock market as the benchmark KSE-100 index closed down 0.8 per cent or 94 points, during the week ended July 8.

The violence, which began in the first half of the week, resulted in loss of more than 90 lives over the course of four days. The metropolis completely shut down on Friday after the Muttahida Qaumi Movement (MQM) announced a day of mourning for those who had lost their lives.

Earlier in the week, the MQM had announced that it would try to seek common ground with its traditional rival, the Pakistan Muslim League-Nawaz (PML-N) against the government, following up on its move of quitting the federal and provincial governments in the previous week.

Volumes remained low throughout the week and dropped to as low as 29 million shares on Friday, with investors choosing to stay on the sidelines. The market remained under pressure throughout the week, with the KSE-100 index witnessing a decline of 1.5 per cent in the last three sessions.

Another major contributor to the decline of the market was the correction witnessed in the share price of Nestle Pakistan. The scrip dropped sharply by 21 per cent and contributed to a decline of 213 points in the index. The company also dropped from the position of second highest weight in the index to third, at 6.6 per cent as a result of the decline.

The State Bank of Pakistan also highlighted its concerns about the country’s external accounts during the week. The central bank said that the accounts will remain under pressure in fiscal 2012, as remittances stagnate, cotton prices fall (resulting in declining textile exports) and oil prices rise (resulting in a higher import bill).

However, there was positive news as well on the macro front as foreign exchange reserves hit an all-time high, crossing the $18 billion mark and stood at $18.25 billion, after an inflow of $411 million during the week.

Furthermore, the Consumer Price Index showed inflation at 13.1%, much lower than the consensus and proved to be a pleasant surprise. Lower inflation could result in a cut in the discount rate, moving forward.

Average volumes improved marginally by 3.5 per cent and stood at a low level of 58 million shares traded per day. With volumes at such abysmal levels, the average traded value stood at Rs2.58 billion per day, increasing slightly by 6.6 per cent. The index’s market capitalisation declined 0.7 per cent and stood at Rs3.26 trillion by the end of the week.

What to expect?

With the earnings season still a few weeks away, market activity can be expected to be driven by the law and order situation and the developments in the political scenario in the coming weeks. Investors will also be monitoring the direction of foreign flows, after the outflow of $38 million in the previous week, turned into positive flows of $2.3 million in the current week.

Monday, July 4

The local bourse gained to close at a five-month high amid healthy volumes. Market recovered from the early morning bearish spell after rumours emerged that the Federal Board of Revenue requested KSE managing director to suggest an alternative proposal to capital gains tax for individuals.

Tuesday, July 5

The stock market firmed to close at a five-and-a-half-month high. The index wandered along the neutral line despite National Bank of Pakistan and Pakistan Oilfields directing the index to trade above 12,600 levels in early trade. However, late selling in the afternoon session kept the index to trade in a thin range.

Wednesday, July 6

The stock market fell as investors opted the wait and watch approach.  Broader market failed to bring any fresh liquidity as local investors preferred to see development on the political front as grand alliance between MQM and PML-N continue to form strong opposition for the ruling PPP-led government.

Thursday, July 7

Stocks fell amid massive foreign selling on the back of deteriorating law and order situation in the city.  At least 50 people were killed in the last three days as a wave of violence has gripped the metropolis.

Friday, July 8

Trading levels fell to a ten-month low as violence continues in the city. Dull trading session was witnessed owing to a ‘mourning call’ by leading opposition party, MQM as a protest against ongoing target killing of its political workers.



Published in The Express Tribune, July 10^th, 2011.