Weekly review: Discount rate cut sparks rally at bourse

Volumes increase 66 per cent as KSE-100 index gains 134 points.

KARACHI:

Investors flocked towards the stock market, after the State Bank of Pakistan announced a higher than expected discount rate cut of 150 basis points to 12 per cent. As a result, the benchmark KSE-100 index jumped up by 1.1 per cent or 134 points during the week ended October 14.

In an unexpected move, the central bank knocked off 150 basis points from the discount rate in its monetary policy announcement on October 8, citing low inflation numbers after the Consumer Price Index’s (CPI) base year was changed from 2000 to 2008.

It had been widely expected that a discount rate cut was in the offing, but in the region of 50 to 100 basis points. However, the SBP’s decision shocked the market and the KSE-100 index shot up by 238 points on Monday. Volumes also stood 183 million shares for the day.

However, the excitement of the rate cut was short-lived as macroeconomic data released during the week highlighted the fragile state of the economy, which resulted in investors taking a backseat and the index closed the week with clipped gains.

Macro indicators revealed that the country’s trade deficit widened by 29 per cent to $5.1 billion in the first quarter of fiscal year 2012. Furthermore, remittances declined 32 per cent in September over the previous month and clocked in at $890 million.

Foreigners also were net sellers and offloaded $2.8 million worth of equity during the week. Profit-taking was also witnessed after Monday, and contributed to the declines witnessed in the rest of the week.

The fertiliser sector was again in the limelight as Fauji Fertiliser Company (FFC) raised urea prices, following the footsteps of Engro Corporation, which announced a price hike in the previous week. As a result, FFC, Fauji Fertiliser Bin Qasim and Fatima Fertiliser climbed by 10 per cent, 5.4 per cent and 16 per cent, respectively.

The banking sector took a hit as a result of the decline in the discount rate as banking spreads are expected to decline as a result. United Bank Limited closed lower by 6 per cent while National Bank of Pakistan declined by 8.3 per cent during the week.

Average daily volumes stood at 125.3 million shares per day, up 66 per cent over the previous week. The increased activity was a welcome sight at the bourse. Average daily value also jumped up by 52.3 per cent and stood at Rs. 5.34 billion per day. The KSE’s market capitalisation rose 0.6 per cent to Rs. 3.14 trillion during the week.

What to expect?

With the market’s reaction to the discount rate behind, investors will keenly look forward to the quarterly corporate earnings season which is due to kick off tomorrow (Monday). Stock specific activity can be expected including Attock Group of companies which is also scheduled to announce their results in the coming week.

Another important thing to look out for is the direction of foreign flows. The market has been witnessing net outflows for the past couple of weeks, yet continued to climb upwards. A change in the direction of foreign flows should provide further impetus to the market.

Monday, October 10

The stock market rose 314 points in just 15 minutes to above 12,000 points after a gap of six weeks following central bank’s surprise rate cut at the weekend. Trade volumes jumped 160% to an astounding 183 million shares compared with Friday’s meagre tally of 70.4 million shares.

Tuesday, October 11

The stock market fell slightly in a very active session as volumes stood at a healthy 141 million shares on local and foreign activity.  Some profit taking was seen in local equity market after 2% gain in the previous trading session.

Wednesday, October 12

Equities traded along the neutral line and closed range-bound with volumes concentrated in few select stocks. Index heavyweights like MCB Bank, Pakistan Petroleum and Oil and Gas Development Company witnessed selling that kept the benchmark index under pressure despite aggressive buying in fertilisers and refineries.

Thursday, October 13

The stock market witnessed a selling spree at inflated levels led by the oil sector after the government decided to ban petroleum product export to Afghanistan. Eleven of the twelve listed oil and gas sector companies closed in the red on news of the ban.

Friday, October 14

The stock market rose marginally on the last trading session of the week ahead of the results season scheduled to start on Monday. Fertiliser stocks continued to shine amid hopes of above expectations earnings and healthy payout in the upcoming result season.

Published in The Express Tribune, October 16^th, 2011.