The Karachi stocks market continues its current record-breaking bull-run as positives on politico-economic front boost the otherwise risk-averse equity investors.
Also, the stocks analysts foresee in the days to come a glorious period for the country’s sentiments-driven bourses that would witness the banking stocks undergo a price re-rating phase.
Friday, last trading session of the week, saw the KSE 100-share index hit the all-time high of 33,324.82 points amid higher trade. “Stocks closes yet again at an all-time on higher trades and led by oil stocks on global oil prices stability after free fall earlier this week,” viewed Ahsan Mehanti of Arif Habib Corporation.
The senior equity analyst said second and third tier scripts, which were expected to benefit from falling leverage cost, invited institutional buying during the day.
Mehanti opines that catalyst for Friday’s rally included speculations ahead of major earnings announcements due next week and expectations for a further rate-cut by the State Bank. The central bank, having already slashed the cost of borrowing for the businesses to a single digit (9.5 percent) is likely to unveil its monetary policy statement on January 15.
Citing attributable factors ranging from a steep fall in the t-bills yields to contracting international oil prices, the economic observers are expecting the banking regulator to decrease the policy rate by one percent for the next two months: January and February.
“We foresee a 100bps cut in the discount rate to 8.5 percent versus 9.5 percent,” said Shajar analyst Daniyal Rafiq.
The analyst augments his claim by factors like decelerating oil prices which already have downed by 50 percent YoY, a downward trend in Consumer Price Index (CPI) that shrank to 4.3 percent in Dec-14 and a higher real interest rate spread of 2.27 percent against the last five-year average of 1.5 percent.
“CPI (inflation) for Jan’15 is anticipated to clock in at 3.8 percent providing a solid case for monetary easing,” said Rafiq.
Similarly, he said, Pakistan’s Balance of Payment position was likely to remain favourable in the months to come, thanks to the country’s strong foreign exchange reserves position and a persistent rupee-dollar parity.
Umair Naseer of Topline Securities also sees a 100 basis point rate-cut by the central bank in FY2015, to end on June 30 this year.
This, coupled with other positives, the analyst believe would augur well for the listed banking scrips.
“We expect profit growth and price re-rating across banking sector,” the analyst said.
As, he said, the credit appetite had started to grow, the country’s banks were likely to be key beneficiaries in coming years.
“Demand for credit is likely to come from power, textile, telecom and consumer sectors,” Umair said.
Moreover, the analyst said, declining Non Performing Loans coupled with adequate Capital Adequacy Ratio (CAR) would further help the banks to grow overall.
“UBL (31 percent upside) and BAFL (18 percent upside) seem most undervalued stocks in our universe,” the analyst viewed.
While UBL had a diversified presence in local and international markets and a strong Non-Interest Income, the BAFL’s asset quality was improving along with its strong presence in Islamic banking.
“Capital injection in BAFL is likely to bring CAR at comfortable levels and would provide bank with excess liquidity,” said he.