Equity market rallies 6% in 1Q2013 as election nears


Hopes for change in the political setup along with strong foreign inflows were the major drivers of the country’s equity market during the first quarter of calendar year 2013 (1Q2013).
The market observers believe that while the May 11 election are around the corner, the equity investors were cautiously looking at the fast-changing political developments in the country. “We anticipate market activity to hinge on political temperature of the country,” viewed Topline analyst Nauman Khan.
The heightened investors’ confidence was also attributed to significant reduction in the policy rate that had facilitated the funds flows towards equity market, said the analysts.
The benchmark KSE 100-share index posted a gain of 6 percent, 5 percent in dollar terms, during the quarter to close at 18,043 and overall market capitalization reached Rs4.4 trillion or $45.2 billion.
“Though the index made a new high of 18,185, on March 01, 2013, the market capitalization was still seven percent, 40 percent in dollar terms, down from its record high of Rs 4.8 trillion ($74.9 billion) achieved on April 18, 2008,” said Khan.
With index achieving our midyear target of 18,000, we re-iterate that index can make a new high by crossing 19,500 in calendar year 2013 as mentioned in our strategy note date December 12, 2012. Abrupt PKR deprecation due to weakness in external account remains the major risk to our assessment.
The positive momentum was accompanied by higher traded volumes. During 1Q2013, average daily traded volumes stood at Rs5.7 billion (US$58.4 million) which compares favorably with Rs4.5 billion (US$46.6 million) recorded in the previous quarter. The average traded volumes are the highest in last 12-quarters.
In terms of shares, average volume stood at 210.6 million which is up 25 percent from preceding quarter, while are highest since 1Q2008 (19-quarters high).
In addition to higher foreign buying, we believe increased participation by individual investors have also contributed to improved depth of the market. Individual participation on an average improved to 50 percent in 1Q2013 as against 48 percent in the preceding quarter.
The foreigners, that hold $3.3 billion worth of Pakistan shares that is 31 percent of free-float and 8 percent of market capital, remained net buyers in 1Q2013.
The offshore investors in the quarter bought shares worth $228 million and sold $158 million resulting in net buying of $70 million as of March 28.
The numbers compare favorably with $65 million net inflow registered in previous quarter.
Giving their future outlook, the analysts reiterated that the market participants were likely to cheer signs of change in the political setup. “Mid caps with high leverage and consumer related business can perform better than large caps in 2013,” said Khan.