Over the weekend the SBP surprised the analyst community with a hefty discount rate cut by 150bps citing lower inflation. After recent changes in the base year, inflation toning down to 11.47 per cent can be considered as a major reason behind the rate cut. The week began in a ballistic fashion with the benchmark speedily reaching 12,246 points, but soon after profit booking by prudent investors restricted the index movement to a 238 points gain. After over 150 trading days, volumes of over 150 million were witnessed depicting investors are in a mood to invest. Keeping in view the decline in DR, Kibor rates were down in the range of 1.25 per cent to 1.35 per cent from the onset of the current month. It is pertinent to note that alternative investment venues i.e. money market funds and Government bonds become less lucrative, while with the decline in risk free rate fundamental valuation of stocks witnessed an upward journey. Stocks with healthy dividend yield were especially in the limelight. The DR cut hangover did not last for a long time as prudent investors continued to off-load investments and booked handsome gains. The benchmark did cross the 12k level with heavy volumes, but maintaining the same level turned out as difficult with persistent selling pressure. The urea price appreciation from time to time fueled the fertiliser stocks as they enjoy enhanced margins. Fatima the cheapest of all the fertiliser stocks along with its discounted gas prices continued to enjoy investor’s preference. Furthermore gas supply constraints with Engro’s new plant raised the prices which were matched by its peers. FFC once again turned out to be the major beneficiary, which consequently blew the prices upwards. APL aggressively geared up with 12.7 per cent gains in the outgoing week after the analyst community hinted the possible upside. HUBC with rumours of one of the sponsor share-holder selling his stake, pulled down the share’s price. Banks were largely tilted towards the negative zone as investors are still uncertain about their spread and growth in advances. After DR cut of 200bps in the current, we may not be able to witness any major cut in the upcoming MPS, said Bilal Asif at HMFS, adding that the result season is about to kick-off and market trend would depend largely on the results.
Money Market: SBP beat street estimates with a precipitous rate cut of 150bps to 12 per cent for the next two months. Although the fruits of aggressive monetary easing would take time to trickle down, ensuing decline in yields might pursue investor to shift into other investment avenues. Secondary yields have followed suit as benchmark 6M KIBOR fell by 130bps since the beginning of the month lower the cost of funds for leveraged corporate. First PIB auction after the rate held during the week witnessed familiar shift in yield curve as 10 years PIB cut-off yield was slashed to 12.24 per cent whilst the government raised Rs 18 billion including NCBs. Trend in government borrowing has shifted from central bank to commercial as borrowing for budgetary support has swelled by Rs260 billion during 1QFY12, further intensifying the crowding out of investments. Besides inflationary pressures emanating from unabated government borrowing, threat of imported price rise through weakening of Pakistani Rupee against green back which has depreciated by 0.70 per cent since the beginning of fiscal year.
