Market rally continues on back of strong corporate results

The stock market’s rally shows no signs of easing amid better than expected corporate results.

KARACHI: The stock market’s rally showed no signs of easing during the week ended on October 22 as better than expected corporate results and the slowly improving political condition bolstered the benchmark KSE-100 index by 2.1 per cent to 10,652 points.

The gain follows a 1.7 per cent increase during the preceding week which was supported by foreign inflows. This week, however, the index hike was supported by local interest, evident by the fact that average trade volumes climbed 35 per cent week-on-week.

Financial results of several heavyweights were the prime drivers. Pakistan Petroleum Limited (PPL), the country’s largest gas producer, posted earnings of Rs7.8 billion for the quarter, up from Rs5 billion in the same period last year.

Similarly, in the fertiliser sector Fauji Fertiliser Bin Qasim Limited (FFBL) posted a 62 per cent increase in earnings at Rs2.9 billion on the back of a bumper off-take in sales of Di-ammonium Phosphate (DAP). Allied Bank Limited also declared profits of Rs5.8 billion for the quarter, representing healthy earnings for the banking sector.

Pakistan State Oil, though, reported lower earnings as it took a hit due to the one per cent turnover tax. Shell Pakistan Limited also reported a loss for the quarter, representing bad news for oil marketing companies.

Results of several major companies are due next week.

The market’s gains were also supported by news that political tensions in the country relatively eased off as the Supreme Court did not make a harsh ruling on the 18th Amendment case on October 21.

Much had been made about the impending decision and investors had taken a back-seat waiting for the situation to unfold. The judgement boosted investor confidence as a possible confrontation between the government and the judiciary was avoided.

Furthermore, some progress has also been made on improving the security situation in Karachi and it was reaffirmed that the Sindh’s coalition government is not breaking down.

There was also news to cheer about on the macro front as the current account posted a surprise surplus of $447 million for the month of September, compared with a deficit of $372 million in August. The country’s foreign exchange reserves also hit an all-time high of $17.1 billion for the week ended on October 15, further improving sentiments.

The positive developments led to an overall increase in local investors’ activity and average daily volumes climbed 35 per cent over the previous week to 122 million shares, a 25-week high. Activity was broad-based and a similar trend can be expected over coming weeks as further earnings announcements are made.

Total market capitalisation of the KSE rose by 1.5 per cent to Rs2.92 trillion by the end of the week. Foreign buying on the other hand declined sharply by 71 per cent, but remained positive at $2.8 million for the week.

What to expect?

The market will continue to focus on earnings announcements in the coming week and should remain relatively immune to other insignificant developments, according to analysts at KASB Securities.

Market heavyweights like MCB Bank, the Oil and Gas Development Company, Engro Corporation and the Hub Power Company are due to announce financial results in the coming week and are expected to give some direction to the market.

In the longer run, however, attention will shift to the monetary policy announcement on November 10, implementation of the reformed general sales tax and similar to previous weeks, developments on the margin financing product.

Published in The Express Tribune, October 24^th, 2010.