With stock brokers en bloc having issues with the government on the way trade and the bourses have been taxed, volumes in the market are at an all-time low for years. That is barring the brief interregnum in 2008 when the government, in an other extremely ill-advised move, had a put a floor under the fall, literally putting the market in a freeze from August to December.
The depression means that the volumes traded remain low, and the appreciation in value is not as across the board and as wholesome as it was in its peak, mid-2000 years. Then it was one of the best performing markets in the region. Now the exact opposite would be an apt description. The beef of the market traders, from the big bullies to small brokerage houses, is not taxation – but how it is done. What the brokers insist on is that the trade, as in the volume, be taxed at source, saving them the bother of countenancing the tax man. Since the government is refusing to budge, volumes have dropped from a peak of on average 700 million shares traded on each work day to its one-tenth: yesterday (Wednesday), the count stood at 65 million. A steep fall indeed! Even so, the companies that are well managed are still enjoying investor confidence and moving up – though again they would have done even better in an upbeat environment. That said, MTL has moved up, well past its last year’s high at Rs600-plus, with its possibility of going up to anywhere between Rs625 to Rs640, promising a yield of around only five per cent if someone cares to invest in it now. Even three weeks ago when I had taken the plunge and bought a little bunch of MTL shares at Rs547 apiece it was worth it, but not any longer.
With the payout time getting inexorably closer, the profitability on all major scrips likely to offer good dividend is diminishing. But so is the investment period, coming down from about 180 days to about half that period.
From amongst the preferred buys, MTL is already out. From amongst the June closing shares, that leaves Attock Petroleum (moving up nicely in a downbeat market to close at Rs384-plus Wednesday – still shy of its 2010 high of 401) and Atlas Batteries (at Rs223, quite a way to match its best of Rs237 last year). The predicted profitability on the basis of the formula that we had discussed previously in this space, was around 28 and 25 per cent respectively. This would now be far less, but there is some juice there, and looking for roughly up to 12 to 15 per cent gain would not be unrealistic.
There is another interesting buy, from a good company that I retain a chunk of in my portfolio – Thal Limited, you would find it in General Industrials. This company has a history of giving pretty decent dividend and bonus shares too: last year it dished out 80 per cent dividend on top of 20 per cent bonus shares. Its earning per share compared to last year on nine months basis is roughly the same, but last year its high rate was Rs134. At Rs101 (around 1,000 shares for an outlay of Rs100,000) its relatively low price makes it a steal in terms of capital gain as it may actually hit its last year’s high in about four-six weeks – read profit margin upwards of 30 per cent.
And this is why I say so: given its low rate and still the promise of an attractive return on investment in a very short period, the investors with leftover cash are likely to do some buying, taking the volume for this company to higher than the 12,000 shares traded on Wednesday. The fund managers in financial institutions too are not averse to booking gains that are quick and follow up, even if they would be scraping the barrel in terms of available cash. But whatever they have would go into companies like Thal Limited, for these are the ones that retain their pull for the investor.
This is also about the time when an Ordinary Joe would be well advised to keep track of when the board of directors meeting of the company whose share they hold is taking place, its likely outcome and whether to keep money invested in there or to move out, preferring capital gain over dividend and bonus. More on this, next week.
The writer is Sports and Magazines Editor, Pakistan Today
