Market rally resumes after a one-week break

Investor confidence boosted after a series of positive news.

KARACHI: The stock market’s rally resumed during the week ended November 5 as the benchmark KSE-100 index posted an impressive gain of 2.7 per cent and climbed to a year’s high of 10,882 points.

Despite a dull start to the week, a flurry of positive news provided a boost to investor confidence which was visible from the fact that daily volumes climbed from 81 million shares traded on Monday to 195 million shares traded on Friday.

The index dropped 0.5 per cent in the prior week, but collectively over the last five weeks it has managed to climb by an exceptional 9.8 per cent. The KSE-100 index has climbed 15.9 per cent since the start of 2010.

The major development of the week emerged from the discussions between the government and International Monetary Fund (IMF) officials on the release of $1.7 billion under the fifth review of the standby arrangement. Apparently, officials have reached a consensus and the tranche will be released after approval from the IMF executive board.

Earlier in the week, it was reported that the tranche was in jeopardy as the government had failed to implement a broad-based value added tax (VAT), now referred to as the Reformed General Sales Tax (RGST), and also failed in resolving the circular debt issue in the energy sector.

The reversal of the turnover tax on companies to 0.5 per cent from one per cent as announced in the budget for 2010-11 also proved to be a major development during the week.

The tax had a crippling effect on oil marketing companies like the Pakistan State Oil and Shell Pakistan Limited. PSO and Shell climbed by 6.3 per cent and 9.5 per cent respectively during the week.

The energy and power sector was the star performer and recorded significant foreign buying as well. The Oil and Gas Development Company, Pakistan Petroleum and Pakistan Oilfields, all closed the week in the green, bolstered by news of oil discovery in the Makori east field.

From an administrative point of view, an amicable solution to the row between the Securities and Exchange Commission of Pakistan (SECP) and the Karachi Stock Exchange board was also achieved regarding the appointment of Haroon Askari as acting managing director of the bourse.

Foreigners returned as net buyers and bought an aggregate of $12.7 million worth of stocks, primarily in the exploration and production sector. However, local individuals were the biggest net sellers offloading $8.5 million worth of stocks.

Average daily volumes, although down by 7.3 per cent over the previous week at 123.2 million shares, showed positive signs as turnover continued to grow during the week and hit a six-month high of 195 million shares on Friday. Market capitalisation also climbed 2.4 per cent to Rs2.97 trillion during the week.

What to expect?

The market can be expected to continue its steady path towards the 11,000-point barrier in coming weeks, especially as clarity emerges over the disbursement of IMF tranche.

With the earnings announcement for all major companies completed, attention will now be on macro data and the all-important monetary policy announcement at the end of this month.

The coming week will be a shortened one as Tuesday will be a public holiday on account of Iqbal Day. But the key inflation numbers for October are also due, which are likely to impact the market.

Monday, November 1

Stocks closed down on the first day of the week amid thin trading volumes as investors opted to book profits at higher levels. The Karachi Stock Exchange (KSE) benchmark 100-share index ended 0.57 per cent or 60.13 points lower.

Tuesday, November 2

Bullish sentiments prevailed at the local bourse as the market responded positively to the government’s decision to revert turnover tax to 0.5 per cent for oil marketing companies, refineries and gas utilities. The benchmark 100-share index gained 143.6 points.

Wednesday, November 3

Stocks failed to sustain overnight positive momentum as investors opted to book profits at inflated levels amid worries over delay of the next IMF tranche. The Karachi Stock Exchange’s benchmark 100-share index ended 0.6 per cent or 64.22 points lower.

Thursday, November 4

Bulls entered the stock market on the back of fresh buying in oil, banks and other blue-chip stocks along with continued foreign fund support. The Karachi Stock Exchange benchmark 100-share index ended 0.8 per cent or 84.54 points higher.

Friday, November 5

The market surged to a 26-month high in line with rising Asian markets on triggers including soaring oil prices and increasing foreign inflows. The benchmark KSE 100-share index ended the week with a bang by rising 1.68 per cent or 179 points.

Published in The Express Tribune, November 7^th, 2010.