KSE climbs 1.4 per cent amidst range-bound movement

KARACHI: The stock market continued to post gains ahead of the corporate earnings season and climbed 1.4 per cent on a weekly basis, although it was restricted by range-bound movement.

The week was dull in terms of the news-flow and investor sentiments were guided by announcements to be made in the coming week.

The State Bank is due to announce the monetary policy for the next two months on July 30, while the corporate earnings season is set to start from Monday.

The central bank is likely to keep the discount rate steady at 12.5 per cent, but there have been indications from some fixed income funds that the rate may be hiked by 0.5 per cent (50 basis points).

Investors have become anxious about the policy announcement and any increase in the discount rate hike can be expected to have a negative effect on the market. But the possibility still remains as the State Bank has failed to bring inflation under control since the discount rate was cut to 12.5 per cent in November 2009.

The corporate earnings seasons will start and immediately go into full swing next week with big names like the Fauji Foundation, Engro Corporation and Habib  Bank Limited set to announce their results.

There was a flurry of activity in fertiliser stocks as a result and Engro Coporation climbed 2.3 per cent to Rs188.29 during the week. The Fauji Foundation companies were also in the limelight due to a possible takeover of Agritech Limited which is being sold off by Azgard 9.

The week started off on a bullish note with US Secretary of State Hillary Clinton announcing a $500 million aid package for Pakistan with a focus on development projects. The momentum was maintained into the next day, before the KSE-100 declined slightly in the following two days, only to recover on Friday due to heavy foreign buying; mostly in OGDC stocks, according to analysts.

Friday saw huge foreign inflows, directed towards the Oil and Gas Development Company which continued its impressive bullish trend and hit Rs151.89 during trading on Friday.

Average daily volumes declined 1.6 per cent during the week to 78 million shares. This was despite the fact that there was considerably high activity in second and third tier stocks like Fauji Fertiliser Bin Qasim, Lotte Pakistan, Jahangir Siddiqi & Company and Lotte Pakistan came into the headlines during the week as the government cute protection duty on PTA from 7.5 per cent to three per cent. The duty cut ended months of speculation and led to a downward re-rating of the stock.

Total market capitalisation of the KSE jumped by 1.3 per cent to Rs2.89 trillion by the end of the week. While foreigners were net buyers of $14.1m (up 144 per cent over the previous week), local companies sold $2.9m and banks sold $2.6m worth of stocks during the week.

What to expect?

The corporate earnings season can possible be the first true trigger for the market now that all the negative sentiments surrounding the Capital Gains Tax (CGT) have settled down.

The last four months have seen activity wither down and surprise earnings and dividends announcements can surely provide a much needed kick-start to the bourses.

The monetary policy announcement on July 30 will also be playing on investors’ minds during the week and the low possibility of a rate hike might keep them subdued during the week. Further clarifications about the margin product can also be expected to have their impact on the market.

Published in the Express Tribune, July 25^th, 2010.