Weekly review: Healthy earnings push bourse up by 2.2%

Engro, DG Khan Cement and Kapco results get the rally going.

KARACHI:

The stock market continued its impressive run on the back of healthy earnings announcements, as the benchmark KSE-100 index closed just shy of the 12,500-point barrier during the week ended February 17.

The KSE-100 index posted growth of 2.2 per cent or 265 points to close at 12,495 points, a level last witnessed in June 2011. The index climbed upwards by 2.1 per cent or 249 points in the previous week.

The upward rally came despite State Bank of Pakistan’s (SBP) decision to keep the discount rate unchanged at 12 per cent in its monetary policy announcement on February 11. The SBP cited the fiscal and trade deficits, along with lack of foreign inflows as the reason behind their decision.

The market maintained its momentum following a string of healthy earnings announcement and in anticipation of announcements to be made in the coming week. Several blue-chip companies surprised the bourse with healthy earnings or heavy payouts and resulted in heavy activity in these select scrips.

The star performer of the week was Engro Corporation which posted earnings per share (EPS) growth of 17% to Rs20.5 for the year ended December 31, 2011. The company announced a cash dividend of Rs2 per share and topped it off with a 30 per cent stock dividend for investors. The firm’s share price rose 10 per cent during the week to close at Rs134 as the stock closed at its upper limit of 5% in the last two days of the week.

The second major announcement came from the cement sector, where DG Khan Cement blew past market expectations and posted EPS of Rs2.92 per share for the first half of the fiscal year, up by a massive 566 per cent over the previous year. The result triggered widespread buying in the cement sector.

In other strong results, Kapco announced an EPS of Rs3.07, but surprised with a cash dividend of Rs3.75 while ABL announced EPS of Rs11.79 with a cash dividend of Rs. 2.5 per share along with a 10 per cent bonus issue.

The market was further bolstered by the United States’ State Department’s announcement of $2.4 billion in civilian and military aid to Pakistan for fiscal year 2013. The announcement assured investors of continued foreign flows and more importantly of the improving relationship between the two countries.

On the political front, the Supreme Court of Pakistan laid charges against the Prime Minister in the contempt-of-court case. The Prime Minister pleaded not guilty and the next hearing of the case is scheduled in the coming week, which is likely to create a tense atmosphere at the bourse.

Volumes remained healthy and stood at 185 million shares traded per day on average, up 3 per cent over the previous week. Average daily value, however, decline 14 per cent as most of the trading was in second-tier stocks. The market capitalisation of the KSE increased 2.3 per cent to Rs3.25 trillion.

What to expect?

The coming week will witness earnings announcement from heavyweights like OGDC, MCB Bank and United Bank. Surprising results from these companies could easily be a stimulus for the market. However, the market at its current levels feels a bit over-cooked and investors should tread cautiously and adopt a cherry-picking approach in the coming days.

Monday, February 13

The stock market started the week on a low note as investors followed the prime minister’s fate in the Supreme Court proceedings on the contempt case. After the extension of the matter till February 22, the index recovered 96 points from its intra-day low of 12,154.

Tuesday, February 14

The stock market closed just slightly higher despite being up around 100 points in early trade before investors opted to sell. Oil stocks continued to remain out of favour which was evident from dismal volumes while second tier stocks dominated proceedings.

Wednesday, February 15

The equity market closed in the positive territory as investors rushed to accumulate stocks. Second tier stocks again led the volume charts as reportedly retail brokers continue to take interest in penny plays.

Thursday, February 16

Equities rallied to close above the 12,400-point level as a buying spree was witnessed in index heavyweights right after the trading bell got trading underway.  Excellent payout by Engro Corporation lifted the market which saw a turnover of more than 200 million shares.

Friday, February 17

The stock market’s upward rally continued with the benchmark 100-share index closing at a seven-and-a-half-month high. Investor participation also remained strong with 233 million shares being traded against the preceding day’s 206 million shares.

Published in The Express Tribune, February 19^th, 2012.