Weekly review: Market rally comes to an end as profit-taking kicks in

Benchmark KSE-100 index shed 0.4% after climbing for the last eight weeks.

KARACHI:

The stock market’s rally finally came to an end as investors chose to book profits, resulting in the benchmark KSE-100 index shedding 0.4% or 55 points to close at the 13,297 point level, during the week ended March 16.

The market had witnessed an impressive rally lasting eight consecutive weeks, which saw the KSE-100 index climb by 18% since the start of 2012. However, investors took a more cautious approach this time around and chose to book profits at the high levels.

Volumes, however, remained on the uptrend and stood at a healthy 400 million shares traded per day on average during the week, up by 12.7% over the previous week. The healthy volumes were a strong indicator of the sustained investor interest in the bourse.

A correction had largely been expected running up to this week after the index’s gains in the last couple of months. A similar trend can be expected to continue in the coming weeks as the market still remains at high levels.

The week also lacked any major triggers, with the most noteworthy announcement coming from the Federal Board of Revenue (FBR) which made a budgetary proposal of reducing corporate tax to 30% from the current 35%.

Rumours had been afloat in the past few weeks regarding this proposal and the FBR’s announcement did little to excite the market during the week.

The fertiliser sector came under pressure during the week, after disappointing sales numbers for the month of February due to the sale of imported urea at a subsidised rate by the government. As a result, Fauji Fertilizer, Engro Corporation, Fauji Fertilizer Bin Qasim and Fatima Fertilizer, all underperformed the market by 5%, 5.2%, 3.8% and 7.4%, respectively.

Foreigners were again net buyers during the week of $1.5 million worth of equity, as compared to $7.5 million in the previous week. The number was lower due to net selling in the final two sessions of the week, and should serve as a note of caution to investors.

Although volumes rose 12.7%, average daily value dropped by 12.4% to Rs6.28 billion traded per day, reflecting increased volumes in low-tier stocks in which the majority of profit-taking was witnessed. The market capitalisation of the KSE declined 0.9% to Rs3.44 trillion by the end of the week.

What to expect?

The coming week will witness an increase in political noise, as the contempt-of-court and memogate case will resume in the Supreme Court, which could have an impact on the market if any drastic decisions are taken.

The Capital Gains Tax issue will also remain in investors’ minds as the April 1 date approaches for the implementation of the reformed CGT regime. Any clarifications from the pertinent authorities on the matter will also have its impact on the market.

Monday, March 12

The stock market surged after the opening bell, but was unable to sustain its morning highs as trading progressed at record volumes. Trade volumes rose further to 576.8 million shares on Monday, compared with Friday’s six-year high tally of 552.8 million shares.  Investors chose to book profits on the overall positivity and the market settled on moderate gains.

Tuesday, March 13

The benchmark index closed in the red. According to JS Global Analyst Jawad Khan, investors chose to book profits led by oil stocks.

Wednesday, March 14

The stock market recovered some of its recent bullishness, with volumes and levels improving during trading.

Thursday, March 15

The stock market fell nearly 80 points in early trade, but support from cement and oil stocks saw it close in the positive territory after a volatile trading session. Equities remained volatile amid relatively lower volumes than previous sessions, as small and mid cap stocks continued to dominate volumes.

Friday, March 16

The stock market closed in the negative territory amid soaring volumes, as investors booked profits before the weekend.  According to JS Global Analyst Ahmed Rauf, investors chose to book profits as the market failed to sustain at the 13,500 point level.

Published in The Express Tribune, March 18^th, 2012.