The last week of June is on us, and with a significant number of companies (of course, going by the size of our market), about to declare dividend, some dishing out bonus shares too, the activity at the bourses was bound to be relatively hectic. No wonder, other than the occasional correction that inflicted the odd dip now and then, the market has mostly been buoyant – quick to recover from overnight losses.
There is a very good reason for this. This being close to the payout time, most investors big or small, including the institutional fund managers with pockets deep and wide, would naturally want to hang on to their holdings and actually buy more – licking their lips, waiting for the announcements to come.
Since in this seller’s market, there are fewer sellers than buyers, the prices of most companies with a decent record maintain an upswing.
According to the bylaws of Security and Exchange Commission of Pakistan – SECP its acronym, all companies quoted on the bourses have to call in a board meeting within 40 days of the close of the fiscal and announce financial results for the preceding year.
Since a very sizable number of companies (all, except the large taxpayers – such as companies in insurance, banking, fertilisers sectors and Lever Brothers, etc, as for them the closing date is December 31) are June-closing, including the leaders oil and gas, the market is generally upbeat around this time.
Another reason why the upward movement on the graph is maintained is because the companies that have pledged their shares as collateral with the banks too wouldn’t desire a fall in their prices. So, keeping them on a high, even if artificially, is of serious import to them, for if they fall to below the agreed collateral, the banks concerned are likely to come calling on June 30, asking for enhancing the collateral to cover the gap.
All this combines to keep the price closer to the upper range in this period, till the announcements start coming thick and fast, most of them in August.
That is why it is slightly late for the Average Joe to get into the swing, as prices of most good scrips have already inched upward in the last 12 weeks or so. For the uninitiated, around the first or second week of March is the ideal time to get stuck into the June-closing shares.
For example, the two top companies on the basis of their last year’s record, Millat Tractors Limited (dividend an exceptional 650 per cent, meaning Rs65 per share, and bonus at 25 per cent of one’s holdings) and Attock Petroleum (dividend 300 per cent, meaning Rs30 per share, and bonus at 20 per cent of one’s holdings) were priced at Rs515 and 354 respectively on March 3 last.
The two had by Wednesday (yesterday) moved up to 570 and 382 apiece.
That means that in less than three months the capital gain on these two is already substantial, though still lower than their 2010 high of 585 and 401, respectively. Since the earning-per-share (EPS) of both these companies (worked out on the basis of their nine-monthly reports) is better in 2010-11 by an identical six rupees apiece, the payout this time round could be higher. And this is bound to reflect in their floor price, which means that by the time the announcement is around, the high rate of 2010 would have been well surpassed.
So as I mentioned while it may not be the ideal time to make the most hay, but there still are pretty decent opportunities to make your money work for you and book profit – around 20 to 30 per cent is not bad by any means. And remember since you would be investing late, the tie-down factor of your investment, and the exposure too, would be for a far short period – around six to eight weeks.
I do not want to make it sound dense, but the likely measure of profits in the range of 20 to 30 per cent can be worked out by sitting down with a good broker, who should be able to tell you as close to as possible how much of an income an investment of say Rs100,000 would bring.
Well, this is how it works. On March 3, Rs100,000 on the aforementioned price would have bought 194 MTL shares. If the company didn’t pay any more than what it paid out last year (though there is a possibility that it may, for its reported EPS for nine months is higher by Rs6), these would (194 shares by Rs65 dividend come to Rs 12610, the yield from bonus at 25 per cent another Rs24,977) make up a total gain of Rs37,587, or a neat 37.5 per cent. That is if you wait till then, and not en-cash and get the capital gain by the time of board meeting.
I could give more examples, but suffice it to say that finding some 10 to 20 potential entities to invest in safely even at this date should not be too difficult. But please do remember the fundamentals that were mentioned in the first two pieces.
In my previous offering, I had mentioned sharing the tinkering that I have done with my small portfolio. But having overshot the word count, that will have to wait.
The writer is Sports and Magazines Editor, Pakistan Today
