The previous week saw investors take considerable hits on their investments as the KSE-100 index fell 2.3 per cent WoW or 286 points to stand at the 12,190 mark. Daily average volumes dropped back to 52 million shares transacted (-39 per cent WoW). The decline is mainly attributed to substantial foreign selling which has overshadowed strong corporate results announced by key companies. Twelve million dollar worth of equities, mainly of oil and gas, chemicals and banking sectors, were offloaded by foreign investors during the week; making it the second consecutive week of portfolio outflow from the market. This is said to be the root cause of declining trend in equities, which would have been exaggerated albeit a late rally by individuals during the last trading session of the week. Analysts correlate the sell-off with Asian markets some of which witnessed foreign outflows (Taiwan: $600 million, S.Korea: $460 million) triggered by fears over Europe’s debt crisis.
However, the relation with our local market and given that an inflow was seen in India, creates doubts over the influence of sell-off in Asian markets on local bourse. Whatever the reason, the impact has been significant enough to overshadow strong earnings announced. Once again fertilizer stocks were in the limelight after various news reports indicated further gas curtailment to fertilizer manufacturers.
Stock Specific Activity
Key companies that announced their 1H2011 results were MCB, UBL, FFBL and FFC. MCB and UBL registered decent growth in earnings of 33 per cent and 29 per cent respectively owing to higher average KIBOR during the period as well as contribution in terms of non-interest incomes. Both announced a cash dividend respectively as per analyst forecasts (MCB: 30 per cent, UBL: 15 per cent). Meanwhile, higher urea prices saw an expectedly large jump in the earnings of FFBL (+104per cent YoY) and FFC (+61per cent YoY). A positive surprise was witnessed in the dividend payout of FFC, which gave a 45 per cent payout. As per initial expectations substantial activity was witnessed in these stocks, however, this interest was not translated into a hike in scrip price. We expect that a price translation would come gradually over the coming period, specifically MCB, which is trading under consensus value. Key announcements expected next week by PSO, LUCK, ABL, PPL and EFL.
Forward Looking Expectations
Given that relatively greater activity has been witnessed in relation to earning announcements, the above mentioned stocks would be hot picks for the coming week, if only accompanied by positive surprises in earnings. A negative surprise could have the opposite effect. While announcements are likely to influence stocks, foreign selling would probably again take center stage in determining the final direction of the index. News regarding political constraints on the US debt ceiling and deepening European crisis would likely have an indirect impact on our market. Nevertheless, a positive sentiment is expected to prevail in stocks offering a healthy dividend payout during the upcoming week.
Monthly Review – Index Down By 2.45pc
Right at the start of the current fiscal year investors appeared to be booking gains and shying away from the stock market. Nevertheless, by the end of the current month investors started to take advantage of valuable opportunities available in the market. The result season has already kicked off with half year result season by FFC, FFBL, MCB, UBL and FABL. The index lost around 2.45 per cent in the month of July with average daily volumes of 53.78 million shares. On the last trading day of the month the index recovered around 92 points. The political tug of war was at its peak after the MQM left the government and Governor Ibad stepped down as Sindh Governor. Furthermore PMLN indicated that it would switch gears and form a grand opposition alliance. Foreign fund managers are more skeptical about US debt and US investment in Pakistan as the market witnessed an outflow of $29.56 million.