KSE 100 declines as profit taking sentiment prevails


In the first week after the Eid holidays the KSE-100 index displayed resiliency by gaining 216 points (+1.9 per cent WoW). Regionally weak performance of equity indexes refused to faze investors at the local bourse as average daily volumes were upbeat at 82 million shares per day. The index outperformed regional peers by 1 per cent owing to attractive valuations and high dividend yields. Global markets continue to face pressure on the back of continuing fiscal troubles of major international economies. However, the KSE remained positive owing to a relative improvement in law and order of Karachi, as well as healthy result announcements. Another plus for investors was provided by a net positive foreign portfolio investment of $1.7 million after witnessing 5 weeks of consecutive outflow. Activity was seen mostly in the banking and chemicals sectors which outperformed the index by 2.7 per cent and 3.6 per cent respectively. Amongst the banks, NBP led the way offering attractive dividend yields, news flows of MCB planning to issue Level I ADRs was treated positively, while a rally was seen in ENGRO owing to the shortening of annual turnaround time for Qadirpur.
Stock Specific Activity
The USD continued its climb against the Pakistani Rupee owing to continuing scheduled debt payments resulting in pressure on the exchange rate. This proves beneficial for textile companies as their exports proceeds are mostly dollar denominated. As a whole, the sector reported an 8.1 per cent jump WoW. During the week, key results that were announced during the week were HUBC, PTC, DGKC and NML. HUBC posted an EPS of Rs4.69 in FY11 (-2 per cent YoY), however, was able to declare a surprise Rs3 dividend. PTC posted an earnings decline of 20 per cent YoY to Rs1.46 per share in FY11, although still above analyst estimates. DGKC reported negative growth in earnings of 27 per cent YoY to Rs0.39 per share in FY11. Meanwhile, NML announced a more than expected dividend payout of Rs3.3 as its earnings surged 66 per cent YoY benefiting from higher export prices, greater contribution of the spinning and weaving segments to operating profit, gains on financial derivatives, and one-off gain on proceeds received from the Pakgen IPO.
Forward Looking Expectations
With positive foreign investment and share volumes witnessing an uptick, the market seems to be displaying characteristics of a much anticipated rally. To date in FY11, the KSE remains the highest yielding bourse in comparison to regional peers offering an attractive dividend yield of 9 per cent. This aspect is likely to attract yield hunters as indications for monetary easing by the SBP seem to emerge.
However, with political events taking a turn at the time of writing, the sustainability of investor confidence remains to be seen in the coming week. We expect the political situation taking its toll on the index similar to previous instances, therefore, emphasizing on the criticality of correct investment timing. If the market takes a corrective turn on the back of these developments, a wait and watch strategy would be best suited.