Weekly review: KSE-100 continues to surprise, climbs 1.9%

Oil and banking sectors perform while textile and automobile stumble.

KARACHI: The stock market continued to surprise and maintained its upward trend, with the benchmark Karachi Stock Exchange 100-share index surging 1.9 per cent during the week ended December 10.

The index managed to close at 11,620 points, a level last witnessed in July 2008. The bourse has climbed 5.1 per cent in the last three weeks alone and has climbed 17 per cent in 2010.

The oil sector was the star performer of the week as global oil prices crossed the $90 per barrel mark and resulted in heavy buying in the energy and power sector. The sector’s weight comprises 35.5 percent of the KSE index.

Pakistan Oilfields Limited climbed by 5.9 per cent to close at Rs291.5 while Pakistan Petroleum Limited surged by 2.9 per cent to close at Rs208.1.

The banking sector was also in the limelight during the week, primarily as a result of news regarding the Dewan Group, which had previously defaulted. News began circulating that the group will restructure its bank borrowings. The group’s decline was one of biggest corporate defaults in the country and had affected almost every major bank. The possibility of loan recovery and potential reversals of provisions led to heavy interest in the sector.

On the other hand, the textile sector was a major loser during the week as the World Trade Organisation (WTO) rejected the European Union’s (EU) proposal for duty-free concessions to Pakistan on 75 products, most of which were textile products.

The EU has promised to retake the issue with the WTO in its next meeting in March, but for now the concessions have hit a snag. As a result, key textile stocks like Nishat Mills and Nishat Chunian dropped by 7.5 per cent and 7.7 per cent, respectively.

Shares of Azgard Nine Limited also dropped by 13 per cent as rumours circulated that the sale of its subsidiary, Agritech, had been halted due to regulatory issues. The Fauji Foundation was expected to take over Agritech.

The automobile sector was also on the receiving end as the government announced an increase in the age limit of imported used cars to five years from three years. The decision has been taken to force local car manufacturers to reduce prices which have been spiralling out of control. The sector declined 4.3 per cent as a result.

Average daily volumes climbed by 21.6 per cent to 182.4 million shares per day with activity picking up in second and third-tier stocks. Market volumes have improved considerably compared with the abysmal levels in the post-flood scenario.

Total market capitalisation of the KSE climbed by 1.8 per cent and stood at Rs3.2 trillion. Foreign buying was down by almost 50 per cent and stood at $11.9 million during the week.

What to expect?

The market has witnessed a rally of 16 per cent since the first monetary policy hike in July.

Two further rate hikes have seen the discount rate currently standing at 14 per cent while the KSE-100 index has continued to climb. Most analysts now agree that the market should see a correction phase and move downwards.

The development of the reformed general sales tax (RGST) issue in parliament will also determine the future direction of the market as the next tranche of the International Monetary Fund’s loan is dependent on its approval.

Published in The Express Tribune, December 12^th, 2010.