It may have, as so many economic experts both of the veteran and whiz kid variety claim, an adverse impact on the economy overall and on our already not really great savings rate. But, as discussed in this space last week when predicting the possibility of a serious rate-cut, the promised stimulus to the bourses has materialised.
When the State Bank of Pakistan during the weekend announced its latest monetary policy – lowering the interest rate by a steep 150 basis points, dubbed as ‘shocking’ by some economists– as anticipated, the bulls became hyper-active and the KSE benchmark, the principal stock market indicator of the country, rose at a gallop, by 240 points on Monday.
For the KSE, this meant that the happy hour was extended to one whole day during which quite a few peaks were scaled with consummate ease. The turnover touched a seven month high, the ceiling a 10 week high and the appreciation in terms of capital gain by a whopping 3.3 per cent.
As is so often the wont in these parts, the following two sessions on Tuesday and Wednesday remained a tepid affair, with the combo of profit taking and net foreign sales halting the sharp upward mobility, but without any significant fall or real erosion.
The person whom I consult quite often these days, First National Equities CEO Mr Ali Malik, is of the view that despite some issues with the economy, the good days are here to stay.
He said, “There is going to be another rate-cut of one or maybe more than one, till the interest is brought down to a single digit – around nine per cent. This measure alone is going to have a double impact. First, it would reduce the burden of interest on the companies, enhancing their profitability which in turn makes them more attractive for the investor. Second, the foreigners at the moment are opting for net sales partly owing to uncertainty in their own parts and partly because of our breaking away with the IMF. This does not send the right kind of signal to someone sitting thousands of miles away. But they are likely to take note of the reversal in trend and with this enhanced profitability, get back to buying at rates that are indeed very promising”.
For the uninitiated amongst the Average Joe Investors, renegotiating the debt with the banks will turn out to be a boon for most companies, for it would mean reduction in financial costs, and that is definitely going to reflect in the balance sheets. The heavily indebted ones actually reap a windfall, for the higher the loan, the greater the benefit. Fertiliser as a sector has been doing very well all along, with the share price of most companies steadily rising. It would get a further boost now, especially for a company like Engro Corporation that is perhaps the most indebted of all, other than the government, of course. So, it may follow the two Fauji companies and, though it has prospered in the last week or two, it could get back to somewhere around its previous highs – around Rs200 plus.
Amongst the December-closing shares one had promised discussing the insurance sector in this piece, specifically why not investing in it was a good idea this season. But the other events took up space. So until next week.
The writer is Sports and Magazines Editor, Pakistan Today
