As the inflation-driven monetary policy stance of the State Bank appears to be more predictable in the months ahead, the market observers foresee a positive domino affect on the share market that, they believe, would keep attracting more investors with the benchmark KSE 100-share index poised to hit new highs.
Thursday saw the KSE 100 index closing at all time high of 15,962 points after peaking to the intraday high of 16,005 points.
The analysts attribute this historic upward movement of the index primarily to monetary policy easing by the central bank in the recent months.
“Primary reason for such improved performance from equities has been cut in the policy rate by the central bank in first week of Oct-12,” said Mazhar A. Sabir, an analyst at InvestCap Research.
With the index gaining 52.26 points, the trading volume at the ready counter grew beyond 189 million shares compared to 135 million of the previous trading session.
“(The) stocks closed at highest close amid higher trades led by cement and oil sector stocks on rising global commodities,” said Ashen Mehanti, a senior analyst and director at Arif Habib Securities.
The analyst sees institutional profit-taking on reports of falling rupee-dollar parity ahead of loan repayments to the International Monetary Fund, which is due this month, and higher import bills for the troubled national exchequer as major factors behind the index’s Thursday’s performance.
“KSE 100 crossed highest ever 16000 level during the trading session,” he added.
Global stocks and commodities rally, improved current account balance for the first quarter FY13 and speculations ahead of CPI inflation announcements for the month of October due on Friday played a catalyst role in bullish sentiments post quarter end earning announcements at the Karachi stocks market.
The trading value, however, inched down to Rs 4.727 billion from Wednesday’s Rs 4.957 billion. The market capital surged by Rs 16 billion to Rs 3.980 trillion from Rs 3.964 trillion a day earlier.
A monthly account of the KSE index shows a growth of 3 percent during the just-concluded month of October.
“Marked with relatively high volatility while having rebounded at the tale-end of the month, KSE100 extended its ride further with a MoM increase of 3 percent,” said InvestCap analyst Sabir.
Last rate-cut of 50 basis points by the central bank, Sabir says, caused the market to dip and was lowered by one percent from the highest level of 15,875 points.
“At the end of the month on the expectation of another single digit CPI figure coupled with inline corporate results of major companies market rebounded by 3 percent,” he said.
During the month in review, the average market volume stood 124 million shares, relatively lower against the previous month’s volumes, down by 15 percent.
The KSE 100-share index yielded a decent return of 12 percent during 4MFY13 and settling YTD return at 40 percent during 9MCY12.
Sector-wise, positive returns provided by a mix of textile (up 11.1 percent), cement (up 5.9 percent) and food producers (up 5.2 percent), outperformed KSE100 during October. On the flip side, telecom sector down by 13 percent underperformed against the KSE100 index by 10 percent.
In terms of region, Pakistan’s equities outperformed in Asia pacific region during the month and posted positive return of mere 0.05 percent (based on USD market capitalization) as against the Asia pacific average negative return of one percent.
KSE100’s YTD return is still above par than that of the regional markets’ as well as other world benchmark indices’ with 29 percent return comparing average return of Asia pacific of 20 percent during the same period.
Similarly, Pakistan equities received foreign funds of $ 38 million as against outflows in the Asia pacific region of $497 million. However, on an YTD basis, Pakistan and Vietnam equities stood with smallest size of inflow with only $99 million and $20 million respectively, while regional equities combined stand with a massive inflow of $38 billion during this period.
“With an expectation of below 8 percent inflation in Oct-12 coupled with latest T-bills auction (t-bills cutoff yields down by 38bps) suggest that the monetary policy is predicated to remain in the easing phase (with 50-100bps DR cut expected in Dec-12), making equity markets favorable for the investors,” said Sabir adding “This is foreseen to provide impetus to equities going forward”.
The analysts’ long-term stance on the equity market is positive as they see certain sectors like textile, cement and oil and gas as more profitable in the days to come.
Abdul Azeem, another InvestCap analyst, says the index climbing above the 15,875 points pivot that would reflect follow through buying, which help the index to further gain towards 16,000 levels.
