Weekly Review: Stock market undergoes correction

Banking, fertiliser and energy sectors come under pressure during the week.

KARACHI:

After witnessing strong gains in the previous week, the Karachi stock market underwent a correction as political tensions and negative news flows, particularly regarding the upcoming budget, took their toll on the bourse.

The benchmark KSE-100 index declined sharply by 382 points (2.7%) during the week ended May 11. Positive news flows were few and far between as the market was hit by an onslaught of negative news, resulting in declines during the week. Political news took centre stage as the country’s relationship with the United States took a turn for the worse.

During the week, the US Congress approved a bill calling for trade sanctions on Pakistan and a halt to military aid, unless the Nato supply routes are reopened. This is the first time since the start of the US-led war on terrorism that Pakistan was threatened with trade sanctions, and it immediately had a negative impact on investor sentiments.

The week also saw a sharp decline in foreign investment after strong foreign flows in the previous week. Net foreign inflows stood at $3.3 million as compared to $33 million in the previous week, representing a 90% decline.

Investors have now shifted their focus towards the upcoming budget, which may bring bad news for the banking sector. Rumours were afloat that the government is planning on applying a 15% tax on banks’ investment in government bonds. As a result, the sector remained under pressure throughout the week.

The fertiliser sector also met with some bad news, as Fauji Fertilizer reduced the price of urea by Rs145 per bag. All fertiliser stocks took a plunge, with the exception of Engro Corp, which had earlier in the week climbed by 15%, but ended with clipped gains of 3.4%.

The energy sector also suffered a torrid week, as several independent power producers issued final notices to the government before invoking the sovereign guarantee. The government hurriedly issued Rs23 billion to the power sector during the week, and is planning to issue TFCs of up to Rs80 billion in the coming week to reduce the circular debt.

Average daily volumes remained stable at 261 million shares, 0.4% above the levels witnessed in the previous week. However, average daily value shot up significantly as a majority of trading took place in heavyweight stocks, resulting in values of Rs9.79 billion, up 35% over the previous week.

Published in The Express Tribune, May 13^th, 2012.