Stocks post biggest weekly gain in 17 weeks

KARACHI: After an auspicious start to the new fiscal year, the stock market showed signs of recovery as the benchmark KSE-100 index received a boost of 2.9 per cent (277 points) during the week ended July 9.

The index rise was the highest in 17 weeks, as a flurry of positive developments led to improving investor sentiments, which were reflected in improving volumes as each day of the week passed.

The market started the week on a dull note and volumes were subdued, as witnessed in the first two sessions of the new fiscal year. But positive news flow improved sentiments and the market went from strength to strength, and both the index and volumes kept improving till the end of the week.

A variety of positive developments contributed to the improved health of the local bourse, foremost among them being the meeting between the KSE board members and the Securities and Exchange Commission of Pakistan (SECP), which is seeking to reintroduce a margin financing product in the stock market.

The product’s modalities are being ironed out and it is expected that an announcement regarding its reintroduction will be made in the coming days. Although no official announcement was made during the week, the SECP’s firm stance on reviving the product and subsequent meetings with the KSE board have breathed new life in a trigger-deprived market.

The positive impact from the developments regarding the margin financing product was equally matched by the outcome of a meeting between the Federal Board of Revenue and KSE board members.

A notice sent by the KSE to its members said that the FBR has agreed to create a separate unit for facilitation of foreign investors. It also agreed to apply 10 per cent tax on mark-up income on leverage products as full and final liability. Furthermore, they also agreed to form a sub-committee to deliberate on other issues raised by the bourses regarding Capital Gains Tax application.

To improve the situation further, foreigners also stepped in towards the end of the week and engaged in heavy buying of blue-chip stocks, especially the Oil and Gas Development Company. Foreigners had net buying of $9.8 million during the week, significantly better than the $2.4 million recorded in the previous week.

Other news flow like remittances hitting an all-time high of $8.9 billion in FY10, along with forex reserves jumping to a record high of $16.77 billion also had a positive, albeit restricted effect on the market. The only negative news to come out during the week was the FBR failing to meet the tax collection target of Rs1,380 billion by Rs55 billion during FY10.

Total market capitalisation jumped by 2.8 per cent to Rs2.80 trillion by the end of the week. While foreigners were net buyers, local mutual funds sold $11.2m worth of stocks during the week.

Analysts at KASB Securities believe that the impact of the positive news flow from this week will trickle down to the coming week, and the next round of triggers will be provided by the Friends of Democratic Pakistan meeting on July 15 and the final outcome of the meeting between the SECP and KSE board regarding the margin financing product.

With the FY10 now ended, annual results of most companies will be announced soon and the earnings season can also be expected to usher a new rally for the market. But KASB analysts also caution investors and believe that defensive stocks like Fauji Fertiliser Company, Hub Power and PTCL should be the top picks of investors in an uncertain market.

Published in The  Express Tribune, July 11^th, 2010.