Political strains came to the forefront again as the KSE-100 index lost 101 points (-0.83 per cent WoW). Devoid of investor activity, volumes continued to be low since trading resumed after Eid holidays, with average daily volume coming at 41.5 million shares (-6.0 per cent WoW). The lackluster environment was duly reflected in scarce portfolio investment flowing into or out of the exchange. Of these, foreigners and mutual funds were most cautious, selling shares worth $ 1.3 million and $2.3 million respectively. The political situation has seen gradual deterioration since the start of November.
With reshuffling in the political hierarchies and resignations of important political personal taking fold, investment climate remained dry as investors preferred to remain watchful. Moreover, technical level talks with the IMF – circling around independent external sector assessments – concluded with Pakistani officials revising their international trade projections downwards. Although this is not expected to have a material effect on macros, the data released on foreign investment in the country
was dismal; FDI stood at $340.2 million, down 27.7 per cent YoY.
Stock Specific Activity
The week started on a negative note for banking companies. According to data released by SBP, non-performing loans rose by PKR 38bln in 3Q2011 – a jump of 6.6 per cent QoQ. This came at a time when the pace of NPL accretion was thought to be slowing down and was accordingly taken as a strict downside by investors, as accordingly reflected in the banking sector reporting negative 3.1 per cent WoW performance. However, this rise in NPLs was not proportionate through all, as public sector banks saw the highest deterioration in asset quality. A beneficiary however, was BAFL, who has reported improving asset quality and upon close inspection was the only bank to have recorded a decline in provisioning for the 3Q2011. In other sectors, FFC saw a considerable decline as investors raised concerns over reversing urea prices now that gas has been restored.
Forward Looking Expectations
In the coming week, what will be interesting to see is the performance of fertilizer stocks given that they have dominated the volumes in the incumbent week. This is with particular reference to how investors perceive possible urea price drops in the wake of resumed gas supply. In this regard, there is a slight possibility of ENGRO benefiting at the expense of FFC and FATIMA. Another highlight sector is cement and textiles which are expected to be sensitive to external trade news. This all is though assuming a less volatile political scenario as the past week has been anything other than that. Unless calmness on the front is achieved, investors are likely to stay low, resulting in depressed volumes and scarce trading activity during sessions. Again the trend of foreign investors would be essential in this regard, although a reversal in selling sentiments remain unlikely. Support, if any, would be emanating from local investors on the basis of company activity.