The outgoing week was good to investors as the KSE-100 Index gained 130 points (1.1 per cent WoW) at the onset of the upcoming corporate result season. Daily volumes saw a substantial up tick of 149 per cent WoW to stand at an average of 85 million shares transacted. This is refreshing news given that investor activity has been particularly lackluster in the preceding weeks due to political noise jarring investor confidence.
The outgoing week saw a relatively lull period on the political front with tensions seemingly being eased following the resumption of duties by the Governor Sindh. This resulted in the settling down of violence that had gripped the city of Karachi recently, having a positive impact on investors. Further, with the US Congress rejecting a proposal to suspend all aid – military as well as democratic – investors felt confident about the market.
However, what makes the 1.1 per cent rise in the index more startling is that this came on the back of consistent negative outflows by foreign investors. Foreign portfolio investment was in the red with a net outflow of $22.3 million. This implies that the index performance was driven by local investors, signaling a bullish sentiment present within domestic markets.
SECTOR REVIEW
With the corporate result season on the horizon, key companies are scheduled to announce their results next week. This includes banking and fertilizer sector companies such as MCB, UBL, FFC, and FFBL. This has also been the reason for significant activity seen leading upto these announcements. A dividend announcement can be expected from all these entities given their prior track record and analyst forecasts. More important would be the dividend amount announced as a positive surprise could lead to enhanced investor interest in these stocks. Given an improving banking profile and windfall gains enjoyed by fertilizer manufacturers, although historical dividend trends would perhaps serve as the best future estimate, a greater-than-expected announcement cannot be ruled out. Urea price hike by Engro after possible gas curtailment benefited its competitor Fauji because it has consistent gas supply from the Mari gas field. However, by the middle of the current week investors become cautious after enjoying the unbeaten run of FFC and off loaded the stock. Furthermore Pakistan’s economic team was scheduled to meet IMF but in the absence of a permanent SBP governor the meeting was postponed. The policy discount rate is expected to remain unchanged during upcoming MPS. The corporate results in the upcoming week and continuous selling by foreigners will set the tone of the market next week.
FORWARD LOOKING ESTIMATES
Amongst other sectors, cement stocks have been receiving a larger share of attention recently. This is due to the impact of reduced taxes and duties which the market is gradually incorporating and also the recent rise in retention prices. Cement stocks are likely to remain in the limelight for the coming weeks with all eyes on the bottom line impact of higher prices when results are announced. Located in the South and having a fundamentally stronger business profile, LUCK is reiterated as the top-pick in the industry. Furthermore, activity in the textile sector was dominated mainly by specific high weightage stocks. Going forward, stocks are expected to be sensitive to news flows on cotton crop levels; better yields. Higher quantum would ensure supply availability as well as price stability to some degree for textile millers.
