Weekly review: Bourse kicks off new year on a negative note

Gas price hike and foreign outflow dampen investor sentiments.

KARACHI:

The bearish trend at the Karachi stock market continued as the benchmark KSE-100 index shed 2% or 223 points during the week ended January 7.

The start of the new year meant that the long-awaited gas development surcharge was implemented on various industries, ranging from a relatively modest 14% hike for domestic users to a massive 207% hike on the fertiliser sector.

The country’s gas crisis continued as the supply and demand gap widened further, leading to a closure of gas supply to the industrial and fertiliser sector in the northern region of the country.

Investor sentiment was also affected from the first trading session of the week as it was revealed that gas flows from the highly anticipated Zin block were much lower than expected, leading to 0.6% decline on Monday.

The increase in gas prices immediately created interest in the fertiliser sector as investors expected urea manufacturers to increase their prices as a result of the hike in input cost. Engro Corporation increased prices by Rs210 before the end of the week.

FFC and the remaining urea manufacturers are expected to follow suit in the coming week and increase their prices to Engro’s levels at least. The sector outperformed the market by 4.8% during the week. Fatima Fertilizer is the biggest beneficiary of the price increase as the gas price hike did not apply on its plant due to an agreement already in place with the government of Pakistan.

Another sentiment damper for investors was the inconclusive meeting between the Securities and Exchange Commission of Pakistan and the Federal Bureau of Revenue regarding the modalities of Capital Gains Tax (CGT) collection. The CGT is widely blamed to have dried out volumes at the bourse for the last two years.

However, not all news was negative as Consumer Price Index (CPI) numbers for the month of December revealed that inflation for the month of December stood at 9.76%, the first time in two years that inflation was recorded in a single digit.

The numbers raised investors’ hopes for further monetary easing and resulted in a small rally on Tuesday.

The outflow of foreign funds continued unabated as foreigners offloaded $6.7 million worth of equity during the week.

Volumes, however, improved slightly and stood at 42.2 million shares per day, up by 10% over the previous week. The KSE’s market capitalisation also declined by 1.8% and stood at Rs2.89 trillion.

What to expect?

The market’s attention will now focus towards the upcoming earnings season, which will begin mid-January and participation is likely to increase as investors anticipate cash payouts. The same two issues politics and foreign outflows, that plagued the first half of the current fiscal year, will continue to affect the KSE’s performance.

Monday, January 2

The stock market opened the year on a negative note with the index sinking below 11,200 points intraday. However, a slight recovery was witnessed after better than expected inflation numbers were announced. Federal Bureau of Statistics, now known as the Pakistan Bureau of Statistics announced inflation for December at 9.75%, down by 41 basis points from 10.19% posted last month.

Tuesday, January 3

Single digit inflation triggered a rally at the index in a highly active session. Trade volumes more than doubled to 63 million shares compared with Monday’s tally of 33 million shares.

Wednesday, January 4

The stock market failed to carry its preceding day positive momentum due to reports of foreign selling in blue chips. Foreign institutional investors were net sellers of Rs186 million worth of shares, according to data released by the National Clearing Company of Pakistan Limited after the trading session.

Thursday, January 5

The stock market plummeted as the few investors who participated in the trading session opted to book profits. Foreign institutional investors were net sellers of Rs152 million worth of shares, according to data maintained by the National Clearing Company of Pakistan Limited.

Friday, January 6

The stock market continued the downward trend on the last trading session of the week with continuous selling in oil stocks leading the way. Despite positive news of increase in urea price, the overall sentiment remained negative due to continuous selling by offshore investors.

Published in The Express Tribune, January 8^th, 2012.