Weekly Review: Despite gains, KSE-100 fails to breach 14,000 points barrier

Stock-specif­ic activi­ty resume­s with start of result­s season.

KARACHI:

The stock market witnessed a relatively muted week: the benchmark KSE-100 index made steady gains, but failed to cross the 14,000 point barrier, ending with gains of 137 points (1%) to close at 13,936 points for the week ended April 21.

Investors grew weary of the absence of any new developments on the statutory regulatory order regarding the revised Capital Gains Tax regime, and started to pull back from the market. Volumes dropped sharply by 28% to an average of 268 million shares traded per day.

However, there was a flurry of positive news on other fronts, which provided support to the market.  These helped the index touch the 14,000 point barrier on Friday, before receding slightly to end the week below those levels. The earnings season also kicked-off, resulting in increased stock-specific activity.

The start of the week saw the State Bank of Pakistan keep the discount rate unchanged at 12%. Although the decision to keep the discount rate unchanged was expected, the SBP made a surprise announcement of increasing the minimum savings rate to 6% from the previous 5%. The news resulted in profit-taking in several banking scrips.

The country’s current account balance also turned positive during the month of March 2012, as it recorded a surplus of $184 million during the month on the back of higher remittances. However, the cumulative nine months’ current account balance stands at a deficit of $3.1 billion, primarily due to increased fuel prices and a lack of substantial foreign funds.

The consistency of foreign inflows in recent weeks proved to be another pillar for the market during the week. Net foreign buying stood at $8.1 million, following up on the $2.3 million net worth of equity purchased in the previous week.

On the political front, improving Pakistan-US relations came to the fore, pushing the on-going contempt-of-court cases against the government to the backburner. Senator John Kerry is expected to visit Pakistan in the coming weeks to normalise relations, which is expected to result in the reopening of Nato supply routes and unlock the flow of foreign funds into the country.

The start of the results season was eventful; the cement sector garnered the limelight, while the fertiliser sector fumbled. DG Khan Cement posted a 1,170% improvement in its earnings for the nine month period till March 2012, with earnings per share of Rs4.73, on the back of higher cement prices.

All was not so good for last year’s star performer – the fertiliser sector – as Fauji Fertilizer Bin Qasim posted a loss of Rs0.41 per share for the first three months of 2012; while its parent company Fauji Fertilizer’s income dropped 24% to Rs2.45 per share. The sale of government subsidised urea has proven to be the Achilles Heel for the fertiliser sector this year.

While volumes dropped by 28%, average daily value dropped by only 9%: it averaged Rs6.49 billion traded per day, as investors turned their attention towards blue-chip stocks. Market capitalisation of the KSE increased 0.9% to Rs3.57 trillion during the week.

The stock market fell on the first trading session of the week led by the banking sector that received a hammering following central bank’s increase in the returns they have to pay their account holders over the weekend.  State Bank of Pakistan increased the mandatory minimum interest rate that banks must pay their depositors on savings accounts from 5% to 6% on Saturday.

The stock exchange took investors on a roller-coaster ride: the index ended almost flat after a strong upsurge in the early hours of trading was wiped out in profit-taking by the session’s end. Investors unloaded fertiliser stocks after sentiments dampened on news of a worse-than-expected loss posted by Fauji Fertiliser Bin Qasim.

Wednesday saw positivity in the stock exchange; bulls rallied on rumours of the signing of the capital gains tax ordinance over the weekend, positive economic outlook forecasts by the International Monetary Fund (IMF) and expectations of better earnings results for the quarter.

The stock exchange tested the 14,000 point barrier once again, but the end of the trading session saw the benchmark index close marginally in the red after bearish investors booked profits near higher levels. Trading remained range-bound as investors chose to hedge their bets on the much-anticipated announcement of the revised capital gains tax regime.

The stock market closed flat amidst volatility; the exchange tested the 14,000 point psychological barrier – peaking at 14,061 points – before investors cashed in on those levels and wiped out most of the gains made during the day. Selling pressure was witnessed, particularly in the oil stocks.

Published in The Express Tribune, April 22^nd, 2012.