Low volumes were the hallmark of this week. Despite some initial positive movement in the index on Tuesday and Wednesday (adding 103 points), the last three days were caught in a bear grip. The law and order situation paralyzed business activity in the industrial hub of the country; hence investors were mere observers even though mouth watering valuations and discounted share prices may trigger the value investors to enjoy the discount feast. Within a span of 19-days, the benchmark index has depleted 10.75 per cent with an average daily volume of 53 million shares. Foreign fund managers are exiting the local market as FIPS statistics suggest outflow of $10.17 million during the current month and $3.84 million during the week. Global markets were in a dubious mood after the Euro Zone’s dismal economic growth of 0.2 per cent vs. preceding quarter growth of 0.8 per cent jolted the markets. Fear of recession kept the investors away from stock markets around the world. On the flip side, the investor safe haven a.k.a gold, once again rallied to its all time high level of USD1, 860/ ounce, while economic growth centric crude oil fell below USD80/barrel. Global economic concerns are likely to impact developing nations as their exports destinations would be impacted by the prevailing economic concerns. Our country may face the same hurdle where export progression may be under duress, while the import bill may slide on account of lower oil prices, said Bilal Asif at HMFS. Local investors witnessed major value erosion in their portfolios on account of the continuous bearish trend prevailing in the market. Out of 100-benevolent stocks, merely 16-stocks made headways while 75 per cent of gainers posted minor gains in the range of 0.15 per cent to 2.28 per cent. It is pertinent to note most of the above mentioned stocks were high net worth but have low free float. On the other hand, 74 per cent out of the 100-index shares were traded in negative territory. Among the top tier stocks, Engro continued its miserable run with a 15.3 per cent negative return backed by growth and debt payment concerns followed by NBP with a 10 per cent decline backed by its unexpected lower earnings for the second quarter. “We believe the current wave of violence in the city may keep investors at bay, especially with only six trading days left before the Eid holidays,” Asif said, adding that we believe that a clearer picture of the law & order, global growth concerns and implication of current flooding in the agricultural zone will emerge in the coming days. We are still skeptical about the market performance for the upcoming week where we may see preemptive measures by investors to offload their investments in the market, he added.
FIRST PIB AUCTION OF FY12
During the week SBP conducted first PIB auction of FY12 and subsequent to 50bps DR cut where it raised Rs38 billion excluding NCBs against the target of Rs30 billion causing net drainage of Rs17 billion from the system. Treasury yields witnessed contraction as rates were slashed across all tenors with highest reduction of 60bps on 15year PIB at 13.50 per cent while 10 year PIB was issued at 13.51 per cent. Short term rate have also mimicked similar trend with the benchmark 6M KIBOR is down by 45bps since the rate cut to 13.36 per cent. Money supply witnessed slight expansion during first week of August 2011 owing to government borrowing from SBP as YTD M2 compression was lowered to 1.99 per cent. During the first week of August 2011 the government borrowed Rs116 billion from SBP for Budgetary support. Lower inflation expectation and ease off in market yields going forward are likely to benefit curve positioning towards the longer end.
LAHORE -Global markets have taken a heavy beating following the US downgrade as little has emerged to alleviate fears of another recessionary period. With the US in a tight fiscal position, EU countries marred by debt issues, and global currencies witnessing a rapid decline, investors turned away from equity markets and have again tilted towards commodity investment, led by Gold. In context to the local bourse, foreigners were again net sellers of $5.6 million. This is despite MSCI Barra maintaining Pakistan’s status quo in terms of weight age amongst the frontier market index which was expected to have a positive effect on FIPI. On the other hand, local participation was subdued owing to the Ramadan factor in addition to another week of intense bleeding witnessed in the city of Karachi.
STOCK SPECIFIC ACTIVITY
During the week, the ECC approved increase in margins on regulated products by 30-32 per cent for OMCs and in a surprise move allowed incidental charges to be passed on by refineries. This had a positive impact on Oil and Gas stocks with ATRL leading the way by closing +1.2 per cent WoW, as incidentals constitute a significant portion of its costs as well as it having a significant proportion of regulated products in its product mix. However, the OMC sector underperformed mainly on account of PSO, which saw a drop of 2.5 per cent WoW. Meanwhile, key results announced during the week included NBP, HBL, PSMC and Shell. NBP posted an EPS of PKR 4.81 in 1H2011 – up 3 per cent YoY but below analyst consensus mainly on account of higher provisioning expense indicating further accretion in NPLs. As a result, the stock hit its lower circuit breaker upon announcement and closed -10.3 per cent WoW. HBL’s earnings were in line with expectations at Rs8.43 per share in 1H2011 (+25 per cent YoY), while PSMC earnings stood flat YoY at Rs3.39 per share.
FORWARD LOOKING EXPECTATIONS
The week also saw a mixed bag as far as macroeconomic fundamentals were concerned; Current account deficit declining to $75 million but Large Scale Manufacturing growth contracting by 3 per cent MoM. However, these are not expected to move the market where overriding concerns such as FIPI outflow and violence come into play as per the general relationship seen in recent trading sessions as well. We expect foreign investors to again be features in the selling category, at least for the near term as the factors which continue to stress global economies are very much intact. Dropping below the 11,000 barrier is a huge blow for investors as far as support levels are concerned. In light of continuing disturbance in Karachi, further lows can be expected. On the positive front, subsiding of political volatility and rationalizations in global markets could provide minor support to equity markets.
AAHYAN MUMTAZ
