Weekly review: Bourse surges upwards despite many concerns

Foreigners were net sellers of $7.7 million while capital gains tax implementation was delayed.

KARACHI:

The announcement of the delay in the implementation of the revised Capital Gains Tax regime had little bearing on the market as the KSE-100 index marched forward 488 points or 3.7% during the week ended March 30.

The index’s gain resulted in it closing at the 13,761 points level, levels last seen in May 2008. Investors also shrugged aside the political situation, unrest in Karachi, outflow of foreign funds and the disconnection of gas supply to Engro’s new plant, as the market climbed upwards.

The biggest story of the week was the announcement by the Securities and Exchange Commission Chairman Mohammad Ali that the revised CGT regime will not be implemented from April 1. The chairman’s announcement was all the more negative as no firm future date was provided regarding when the regime would be implemented.

In January 2012, the finance minister in his visit to the bourse had announced that the regime would be implemented from April 1. The announcement provided a spark to the market and resulted in a rally which has lasted for two and a half months and witnessed the KSE-100 index climb by more than 20% since.

To make matters worse, a new spate of violence struck Karachi as workers of both the Muttahida Qaumi Movement (MQM) and the Awami National Party (ANP) were killed which led to a complete shutdown of the city for two days during the week. The situation remained tense throughout the week and is likely to continue in the coming week.

Foreigners also turned net sellers during the week and offloaded a net of $7.7 million worth of equity as compared to an inflow of $3 million in the previous week.

However, investors paid little heed to the news and seemed immune to all the negative developments around them as the index remained in the green for four out the five trading sessions of the week and volumes shot up by 48% at the same time, recording at 368 million shares traded per day.

In sector specific news, gas supply to Engro’s plant was disconnected late on Friday due to supply disruptions and is likely to have a negative impact on the stock in the coming week. Hubco was also in the news as its last major foreign shareholder, National Power International Holding, announced that it will offload its 17.44% stake in the country’s largest power producer after regulatory approvals.

The cement sector performed impressively after cement prices were increased by Rs10 per bag in anticipation of higher demand in the summer season. Lucky Cement, the largest cement manufacturer of the country, climbed almost 10% during the week.

Average daily value rose 43% to Rs. 6.5 billion traded per day, while the market capitalization of the KSE rose 3.7% to Rs. 3.53 trillion by the end of the week.

What to expect?

With the market turning a blind eye towards the negative developments during the week, the coming week will be an interesting one as the market may continue its impressive rally or be subject to delayed repercussions of those developments.

Attention will now shift towards the upcoming monetary policy and any developments pertaining to the implementation of the revised CGT regime.

The stock market remained unsure of which direction to take, as developments on the prime minister’s contempt case remain stalled, and rumours of a delay in the grant of amnesty on the capital gains tax (CGT) circulated in the market.

The bourse seemed keen to shrug off its recent lethargy, registering a sharp rise in an all-round rally despite reports of violence and shut-down of business in the country’s financial hub. Trade volumes swelled to 353 million shares.

The stock market continued its upward drive – closing at a four-year high after broad bull rallies in cement, textile and oil stocks – as rumours of Finance Minister Abdul Hafeez Shaikh’s possible visit to the Karachi Stock Exchange (KSE) early next week piqued investor interest.

The stock market steadied itself near four-year-high levels. Volumes shrunk to more modest levels from the previous day and profit taking was witnessed in some sectors.

Investor sentiment seems to remain undeterred as the bourse resumed its upward march to close at levels unprecedented in recent years amidst heavy foreign selling.

Published in The Express Tribune, April 1^st, 2012.