Earnings season fails to stimulate market

KARACHI: The much awaited earnings season shifted into full swing this week, but failed to generate much interest in the stock market as the benchmark KSE-100 index shed 0.5 per cent (52.18 points) of its value during the week ended April 23.

The market failed to sustain the gains witnessed in the previous week, despite anticipation that the earnings season would provide enough stimuli and maintain the market’s drive towards the 11,000 point barrier. The decisions made at the end of the three-day energy summit also underwhelmed investors, while global events pertaining to the fraud charges leveled against banking giant Goldman Sachs, also created unrest in the market.

The week began on the back of a rally which saw the KSE-100 index climb 2.3 per cent in the last two weeks alone. Analysts had been expecting the earnings season, which went into full swing during the week, to generate enough interest in investors to sustain the rally. However, despite strong results from market heavy-weights like MCB Bank, Pakistan State Oil, Habib Bank Limited and Pakistan Oilfields, which met or exceeded market expectations, the market sentiment remained weak.

Investors also had high expectations from the three-day Energy Summit that concluded on Wednesday. It was expected that the government would announce firm measures to end the power crisis and unveil a roadmap for the future. But, investors were left underwhelmed when the decisions were announced on Thursday, with the only bright feature being the government’s announcement to end the circular debt issue by putting in Rs116b into the energy sector.

The positive impact of this announcement was soon wiped out when doubts emerged regarding the source of the said Rs116b. Global events also played a part in the stock marker’s lacklustre showing with news regarding the fraud charges being leveled against Goldman Sachs by the US Securities and Exchange Commission over its handling of a debt tied to subprime mortgages. Investors feared that the news could trigger a fallout in the US, with global repercussions. Furthermore, global oil prices dropped during the week which led to declines for the energy and power sector.

The Oil and Gas Development Company declined one per cent on Tuesday alone as a result of the low oil prices. During the week, average volumes fell by a sharp 38.5 per cent to 158 million shares after the 27 week high volumes of 257m shares per day were witnessed during the previous week. This was primarily as a result of cautious trading by local investors in light of the above mentioned reasons. Foreign investors continued to pour in money into the market and were net buyers of $16.5m during the week. But there was reason to be pessimistic about the future of these inflows as Thursday’s data showed that foreigners offloaded investments worth $1.61m that day.

All local investors were net sellers during the week as they engaged in profit-taking with banks and individuals offloading $7.6m and $3.1m, respectively during the week. Market capitalisation declined 0.3 per cent to Rs3.007 trillion. Going forwards, it is expected that the earnings season will set the tone for the market in the next couple of weeks. Market heavyweights like Engro Corporation, National Bank, Pakistan Petroleum and the Oil and Gas Development Company are expected to announce their quarterly earnings in the upcoming week, but it remains to be seen if investors will gather interest and provide a boost to the market.