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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
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The KSE Overview: Market Swings to the Hubco Tune

Updated on Oct 09, 2000

The market displayed volatility in both the Index behaviour and volume. The KSE 100 Index, after opening at the 1564.78 levels, closed for the week at 1577.96 levels, up 0.84% wow.

Trading began on a firm note and the Index level continued to edge up until the early hours of the fourth day of trading. Dramatic improvement was witnessed in volumes, which had continued from the previous trading session. The Index peaked at the level of 1614.65 on the second day with a volume of 231 mn shares. The Index managed to close over the barrier of 1600 on the third day after two months. High volumes were a key factor for the turnaround, but the emergence of weakness in the middle of the week extended to the last day, causing the Index level to drop and test the major support of 1550.

The driving force of the week that set the market direction was the Hubco scrip. The sharp volatility of the scrip was a direct result of conflicting news regarding the Hubco-Wapda settlement deal. The Index, after an either-way movement in the early part of the week, managed to close at a higher level due to the support provided by the textile scrips. Other blue chip stocks remained dormant as the textile sector consolidated previous week's gains. Other noticeably active stocks were that of Adamjee Insurance, Nishat Mills and MCB.

Foreign investors remained on the sidelines while jobbers and retailers were seen active from the buy side. Institutions took advantage of elevated levels to reduce their exposure.

The Index is expected to continue being range bound in the band of 1550- 1600 and Hubco is likely to govern market sentiment in the near term. Only a positive outcome on this front can sustain the Index above 1600 levels in our opinion.

Let's examine a scenario

We have decided to ignore our economist, and present to you the sectoral impact of the exchange rate losing another 8% and T-Bill (6 months) yield climbing to 14%. Overall we consider it to be negative for the market in its entirety, except for the possibility that the US and E. Asian markets are hit badly by the oil price rise, in which case, as we have previously demonstrated, Pakistan equities are beneficiaries.

Telecoms: a different ball game altogether

The writing on the wall has started to become increasingly clear. The government is adamant on utilizing the services of PTCL to increase internet penetration rather than focusing on preparing the company for privatization or imminent competition following the end to its monopoly status.

Following this recent interest rate hike by the SBP, we believe that any incremental revenue through the recent devaluation will be negated by a rise in the cost of borrowing. With PTCL maintaining an average 9 bn in short term financing needs, the recent hike in the cost of borrowing is likely to result in an additional expense of Rs 100 mn in view of the projected short term borrowing of around FY Rs 10.6 bn.

Utilities: Adding to their woes

In the absence of any clear signals from WAPDA, the tariff dispute continues to linger on unabated. Although there is no direct impact on IPPs of the recent hike in interest rates, we do believe that the whole sector, with the exception of KEL, continues to remain immersed in various stages of debt rescheduling, and this hike will result in higher financial expenses. The impact would be even more severe in state-owned units owing to their drastically high leveraged financial positions. KESC will be the worst hit, with WAPDA likely to face some degree of financial pressure in the wake of this rate hike.

Banks: All together now..... phew!

The smaller private banks and the almost redundant foreign operators must be breathing a collective sign of relief currently, and under the proposed scenario they would throw a party. These banks in the past two years have faced a rather severe crunch in their net interest margins and have had to rediscover the business of lending. Most of the 1990s have seen these banks sitting pretty, allocating an unimaginable part of their asset base to GoP investments, and earnings spreads of 6 to 7%. The federal budget for FY99 provided a rude shock, as the GoP announced its intention to reduce rates in the economy, and which was followed out to 7.2% levels (6 month T-Bill). Suddenly these banks were earning negative spreads on their GoP investments.

Oil Marketing Companies: Dollar hedge

With the simultaneous rise in the price of international crude oil and the devaluation of the rupee the cost of crude oil in local currency has gone up by 53% in the last 12 months. During the same period, the weighted average price of POL products in the domestic market has gone up 45%. All of this has resulted in a serious erosion of government's revenue from fuel tax, which is expected to go down 43% in FY01 in comparison to FY00, according to the latest figures released by the government. The impact of higher world average oil prices to US$30/bbl could trim away a percentage point from the GDP growth for the year, which may impact volume growth negatively. We believe that the government will increase tax on fuel within this year, meaning more upward petroleum products price revision.

OMCs, being cash rich companies, with no or little debt are not likely to be negatively affected by the simultaneous hike in interest rate. We maintain our overweight stance for OMCs.

Gas Distribution: Can the GoP afford to keep them happy

The devaluation of rupee against dollar and the simultaneous rise in price of international crude oil is likely to have a negative effect on the gas distribution companies. With the raw natural gas sale price of E&P (Exploration and Development) companies linked to international crude oil price, the input cost of raw gas for the gas distribution companies is going to go up. With the present formula of predetermined return on assets, higher cost of wellhead natural gas price will mean that government will have to provide a subsidy to these companies to achieve their guaranteed rate of return.

Cement: Brittle recovery may be undermined

Since commercial and industrial expansion activity are likely to be dampened as a result of increased cost of borrowing, derived demand for cement is also expected to pull back. However, no significant impact is anticipated on the home and residential market side, as the residential house building in Pakistan is overwhelmingly cash supported rather than mortgage based and thus not dependent on interest payments on borrowed money. While the cement industry awaits a shot in the arm in the shape of a demand boost, the hike in borrowing cost is likely to narrow margins and push back sector recovery.

Textiles: Let there be exports

The BMR programme undertaken by the textile companies to remain competitive following the removal of quotas from the world market by the year 2003 is likely to be adversely affected. Investment activity may be dampened specifically for the purely domestic oriented firms. Working capital financing will also become costlier, and therefore the fast recovering net margins could come under pressure.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.00

6.88

-1.71

KSE 100 Index

1564.78

1581.42

1.06

Total Turnover (mn shares)

518.83

951.36

83.37

Value Traded (US$ mn.)

295.05

448.51

52.01

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

103.77

190.27

83.37

Avg. Dly T/O (US$ mn)

59.01

89.70

52.01

MSCI Pakistan Index:

     

Pak Rs.

107.83

109.71

1.74

US $

47.57

47.17

-0.85

.Source: KSE, MSCI, KASB


 
ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

4092.42

-23.83

-0.58%

Hong Kong

Hang Seng

16184.68

+305.79

1.93%

Singapore

Straits Times

1962.97

-32.04

-1.61 %

Sydney

S&P ASX 200

3293.5

-17.80

-0.54%

Tokyo

Nikkei

15994.24

-105.02

-0.65%

.


 
EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

6776.39

-116.10

-1.68%

London

FTSE

6391.2

+9.20

0.14%

Paris

CAC

6258.41

-76.71

-1.21 %

Dow Jones

Industrial

10596.54

-128.38

 

NASDAQ

Composite

3361.01

-111.09