The benchmark index observed one of the most volatile months of the year, where a variety of news continued to impact equity markets across the globe. Although local market seems to be different from the global market, its reactions mimic its global counterparts quite closely at times. This can be considered as coincidences or preemptive measures adopted by local investors to safeguard our benchmark form international selling pressure. It is pertinent to note that while our economic fundamentals differ from the Western economies, global consumer demand may have the same effect on our exports and consequently on our economy.
Nevertheless, our benchmark continued to slip towards the lower level after losing 227 points or 2.04 per cent in the outgoing week while the month to date loss is around 1,289 points or 10.57%. The current month’s performance has already wiped-out the Year to Date gains (1.4 per cent) and created a bearish picture of the index. After witnessing a major decline of around 1,289 points in August, it seems quite clear that banks, DFIs and Mutual funds adjusted their exposures in the market.
On the contrary, local individuals were the largest supporter of the market where individual added net value of Rs1.88 billion towards their investment portfolios. Furthermore around $0.98 million was invested by foreign investors which provided some hope to local investors. It is pertinent to note that whenever there is turmoil in the global markets, foreign fund managers, with a very minute weight of our equities in their portfolios, tend to ignore the small size market. Hence the current buying activity of $0.98 million and month to date selling of $10.94 million are fairly dismal numbers. Looking at individual stocks, NBP faced investor’s wrath posting a negative return of 7.8 per cent. Investor concerns were highlighted after detailed accounts for 1HCY11 were published on August 25, 2011 where non‐performing loans jumped by Rs22 billion in a quarter and turned out to be a major sentiment dampener for the investors. Furthermore the above mentioned provisions included element of circular debt as well which could be reversed after recovery.
Engro finally came back strongly after hitting the lowest level of Rs111.86. Most of the top tier stocks reached extremely attractive levels during the out going week, which triggered a buying euphoria. Result of Indus Motors was better than analyst expectations, which improved its share value. “We believe the upcoming week, with just two trading days, will see investors preferring to stay away from the market,” said Bilal Asif at HMFS.
T-BILL AUCTION
During the week the State Bank conducted T-bill auction raising Rs114 billion including NCBs against the target of Rs90 billion causing net drainage of Rs23 billion from the system. Cut-off yields on Treasury yields remained unchanged with 3, 6 and 12 months paper offered at 13.07 per cent, 13.28 per cent and 13.38 per cent respectively. Accordingly the benchmark 6M KIBOR is down by 45bps since the rate cut to 13.36 per cent. Short term secondary yields have also mimicked similar trend with the benchmark 6M KIBOR down by 45bps since beginning of the month to 13.36 per cent.
Amidst lowering yields and hefty import payments, feeble Pakistani Rupee has depreciated by one per cent since the beginning of FY12. Additionally inflation for August is expected to land above 13 per cent despite higher base effect due to Ramadan. However lower inflation expectation for FY12 and ease off in market yields going forward are likely to benefit curve positioning towards in the long run.
LAHORE
AAHYAN MUMTAZ
Deteriorating law and order situation in Karachi continues to overshadow affairs at the local bourse as investor interest remained bleak. The KSE-100 index closed at the 10,902 level, a meager uptick of 0.2 per cent WoW. Average daily volumes remained subdued at 36 million shares per day (-1.6 per cent WoW), adjusted for the closure of trading on Friday. However, this slight up tick in the index comes on the back of consecutive three weeks decline. Global markets continue to face pressure on account of the fiscal struggle of the US economy. The decision of the Federal Reserve in announcing quantitative easing, as well as pressure on the sovereign situation of other major world economies, continues to fuel concerns over a double-dip global recession. This was further highlighted by the credit downgrade of Japan by Moody’s citing the country’s high borrowing levels and political inability to effectively tackle an ongoing deficit situation. It is pertinent to note that Japan has the highest level of leverage per capita of all the countries of the world and has been on Moody’s watch-list for some time. On a positive, however, foreigners were net buyers – although marginally – with $1 million of investment.
STOCK SPECIFIC ACTIVITY.
During the week, the USD hit an all-time high against the Pakistani Rupee owing to a major portion of oil payments which had to be paid, as well as fertiliser imports materializing during the period. Textile exports continued their upward momentum as they grew by 14.22 per cent YoY in July 2011 to stand at $1.1 billion. On this, textile companies – sales of which are dollar denominated – benefited greatly as the listed sector as a whole witnessed an uptick of about nine per cent WoW. However, the banking sector performed negatively mainly driven by adverse sentiments following NBP’s lackluster results indicating further NPL accretion. Other results announced include ICI, which posted a decline in earnings 16.4 per cent YoY, and PKGS, which continues to be plagued by losses (LPS: 2.48), although slightly improved YoY. LOTPTA reported an EPS of Rs2.44 in 1H2011, up 70 per cent YoY on the back of impressive international PTA margins. INDUS fared positive too, with a 20 per cent increase in earnings YoY, beating analyst expectations.
FORWARD LOOKING EXPECTATIONS
Political events on the local front especially pertaining to action taken in controlling the law and order in Karachi will be central in determining the investor sentiments, in turn, index movements going forward. However, international events with the Fed being in the short-term spotlight are also expected to have an impact. Nevertheless, with Eid in the coming week, resulting in only two scheduled trading sessions, profit-taking by investors for the long-weekend can be expected as it is unlikely that investors will be active in the two days prior. Trading sessions once normal course of business resumes post-Eid are the ones to look forward to. Naturally, the events unfolding in the next few days will be central in shaping how the week after that would perform.