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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
  2. STOCK WATCH
  3. STOCK MARKET AT A GLANCE

The KSE - Overview:

Updated on Mar 05, 2001

This week market behavior was essentially a tale of two stocks. Hubco, which investors rewedded in anticipation of near term (April 2000) payout and PTCL that investors abandoned in the face of continue foreign selling pressure. On Friday Hubco witnessed a surge of buying that pushed its daily volume to 102 million shares from 39 million on Thursday This was driven by publication of the Settlement Agreement between GoP-WAPDA-Hubco on Thursday evening and investor realization, particularly domestic investors realization, of a potentially stellar dividend yield for the stock in FY01. While Hubco flowed, PTCL ebbed. Under enormous selling pressure by foreign funds as well as weak holders (remember the high badla holdings of PTCL at the end of the previous week), the stock price slumped to its historic lows. Most other pivotal stocks basically meandered throughout the week in a range bound manner highlighting the classic characteristics of investor neglect as Hubco and PTCL captured the limelight, albeit in opposite directions. The net market impact was that the KSE-100 Index slipped down by seven points or 0.5% from 1440 to 1433 for the week.

Post - Eid Market Outlook:

Although the coming week will have only two trading days, it is likely to set the tone for investor sentiment going forward for the balance of IQ01. In the near term we expect the market to continue making a firm base near low to mid 1400 levels. In fact, in our opinion, the longer the index remains between 1400 - 1450, the better will it be from a medium term perspective. Our reasoning for this agreement is as follows. Any sharp rise in the index might trigger renewed foreign selling, which could lead to losses for domestic players at higher levels. However, if the selling pressure pushes the index to low 1400 levels, many of the pivotal stocks become quite attractive, both in terms of valuations related to capital appreciation potential as well as in the context of income emphasizing institutional investors. At the lower levels therefore, contrary to conventional wisdom, we feel that the absorption capacity of the market could actually be higher. We have seen this regularly in this past and have no reason to believe that time it will be any different. We state this, particularly as the macro level developments don't appear to have a near term potential of any major negative surprise. On the contrary, recent developments on the domestic political front lead us to believe that the possibility of a civilian administration is gradually increasing. Any concrete developments supporting this view are likely to be viewed positively by the market.

Fundamental Perspective:

Given the above view, we feel that several pivotal scrips are now at levels that can potentially provide large returns if gradually accumulated at current levels when the market is experiencing technical weakness. For example, we do not expect PTCL to remain at its present low level for long. With an expected FY01 dividend yield of 11% on top of a forecast earnings growth of around 20%, PTCL's fundamentals will kick in at some point leading to a re-rating of the stock. Thus, from a fundamental perspective, we maintain our BUY recommendation on the stock with a calendar 2001 target price of Rs 27.

Turning to banking stock next, with a potential of a tax cut for the banking sector, we feel that there is value to be unlocked here. Our bets here are MCB, Askari and Faysal but meticulous investors might also want to look at AL Habib, Metro and Soneri as potential plays in view of good payout history and potential bonus issue as banks move to meet the increased paid-up capital amount. Further, we expect the net interest margin for FY0I to be much better, along with higher loan growth rates for the private sector banks.

In terms of individual stocks, we feel that Dewan Salman has taken an unnecessary hit after the announcement of its results coupled with foreign selling pressure. If investors conduct a more rigorous analysis of recently announced results, the underlying earnings generating capacity of the company is clearly visible. Unfortunately, by not bifurcating the operating results of its acrylic division the company has created some questions in investors' mind about the quality of its earnings. Our view is that this will be cleared up in time and the stock is likely to rebound to Rs24 levels. For longer-term players, Ibrahim Fibres still remains our favourite stock in the PSF sector. On the BUY side, we believe that Telecard also represents very good value at current levels with reasonably high upside potential over a 6-month time horizon.

In terms of the AVOID side, we do not expect PSO, Shell and Engro to out perform the market anytime soon. There are cyclical industry issues due to which we expect mediocre earnings growth for FY01 in these companies. Fauji is more of a defensive play and its potentially attractive dividend yield provides it strong price support from income-oriented investors.

To conclude, in our opinion, investors should consider gradual accumulation in the highlighted scrips on the BUY side as they return from the Eid/Haj season. Further, we believe that as we near 2Q01, focus is going to start shifting to the budget, the IMF, PRGF and long-term external debt restructuring as well as Pakistan Development Forum funding. At the same time, there are likely to be further developments both on the domestic and foreign political fronts. These are likely to impact short-term market behaviour. At the same time, we believe that the companies displaying resilience in the present reversionary phase of the economic cycle are the ones, which investors should focus upon. They ought to watch for sign of cost management, improving operating efficiency, working capital preservation, reliance on higher internal cash generation, build up of market share, improved brand management and leveraging core-competencies for ensuring longer term competitive advantage. It is this group which is likely to give relatively higher protection to shareholders wealth now as well as position themselves to provide above average shareholder wealth buildup in the future.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

6.04

6.00

-0.66

KSE 100 Index

1440.43

1433.03

-0.51

Total Turnover (mn shares)

960.94

687.64

-28.44

Value Traded (US$ mn.)

562.91

280.00

-50.26

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

192.19

137.53

-28.44

Avg. Dly T/O (US$ mn)

112.58

56.00

-50.26

MSCI Pakistan Index:

Pak Rs.

94.12

93.53

-0.63

US $

40.23

40.21

-0.05

.Source: KSE, MSCI, KASB



ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

4095.16

-176.49

-4.13%

Hong Kong

Hang Seng

13966.43

-394.13

-2.74%

Singapore

Straits Times

1907.24

-4.53

-0.24%

Sydney

S&P ASX 200

3333.4

-16.70

-0.50%

Tokyo

Nikkei

12261.8

-419.86

-3.31%

.



EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

6148.4

+25.02

0.41%

London

FTSE

5858.6

-50.00

-0.85%

Paris

CAC

5291.92

-49.42

-0.93%

Dow Jones

Industrial

10466.31

16.17

 

NASDAQ

Composite

2117.63

-65.74