Updated on Mar 31, 2001

After finishing off at the 1350.92 level last week, the KSE100 reopened only to resume its downhill course across the board, as pivotal scrips like PTCL and Hubco remained the victims of the bearish demeanor that investors appear to have tightly embraced. It closed 26.51 points or 1.96% lower to close at the 1324.41 level.

With the exception of a notable Index gain of 23.29 points witnessed in the Tuesday session, the rest of the days saw perpetual decline as other foreign funds besides Morgan Stanley continued to liquidate their long positions in leading stocks.

Trading volumes that reflect a modestly improved figure of 104.76mn compared to 83.12mn last week were purely the result of massive selling in blue chips namely Hubco, PTC and PSO, rather than an upsurge due to genuine investment buying. As is amply manifested by these meager volumes, absorption of the foreign sell -off appears to be negligible in the domestic investment arena.

Recovery on the second day of the week raised some hope that current lows could trigger a strong price rally over the coming sessions. But the Wednesday trading day saw another cutback of 13 points as punters rushed in to book profits at inflated levels. However, unlike previously, buyers were present this time willing to purchase scrips at dip levels.

A fair share of good news poured in this week. The withdrawal of charges of criminal and civil cases against Hubco has finally laid to rest the protracted Hubco-Wapda dispute. Tri Pack also announced an impressive 15% increase in net profit after tax this week, along with a 10% interim dividend despite its significant capex programme, reflecting its high cash generating potential.

On the economic front, Pakistan seems secure on the external account side, as news reports indicated that the IMF Board is likely to approve the release of the second tranche of US $138 million as part of the Standby Facility that Pakistan is currently availing. Alongside, Pakistan has also started the ball rolling for eventual formal negotiations with the IMF for the longer- term hybrid Poverty Reduction and Growth Facility (PRGF) and EFF program. Furthermore, exemption on capital gains tax is expected in the next budget, the GoP expects that the export target will be achieved.

The Index continued to stumble down as the investors' uncertainty did not allow them to fathom and respond to the above mentioned positive developments. The market could not derive lasting strength from the Hubco settlement deal either, save a temporary run -up on Tuesday. The market players continued to remain wary of entering the investment circle, and this confirmed that the market is still groping for firm broad based buying support that has yet to emerge to stall falling prices and until then, snap rallies cannot be sustained.

The T+3 system on day-to-day stock trading is also playing its due role in acting as a major deterrent for investors, who are reluctant to take risk and make fresh commitments despite the presently attractively lower levels of scrips. Gold and the currently attractive dollar rates appear to be safer havens in their eyes for the moment.

Despite the fact that the market may have to witness additional decline from greater sell-offs from foreign funds, we continue to believe that it is ripening up for genuine investors and our reasoning is based on our expectation of an improved political and economic climate over the next two years. With the restoration of the civilian government sooner rather than later, the strong possibility of signing the CTBT by the end of this year, improved domestic corporate earnings outlook by FY02, the market provides an attractive entry point at present levels. Several individual scrips including Nishat, Hubco, Tri Pack and Ibrahim can offer competitive returns at current weakness.

Sector outlook

Natural Gas

Natural gas has moved closer during the last year to being the most widely used energy source of the future. In the 1999 energy mix ratio, natural gas had 38.6% share while oil share stood at 42.8 %. The energy mix ratio for the last year show a rise in share of gas to 41.0% with oil at 43.5%. This change is in line with the current government's policy to rely more on gas, as oil imports are considered a burden on the already low foreign exchange re serves due to rising international oil prices.

The government recently has been quite actively involved in deregulating the gas sector. The focus has been on both the upstream (gas exploration and production) and downstream (gas distribution and transmission) companies, in order to attract more foreign investment in the sector to develop and utilize recoverable potential gas reserves of 200tcf.

Exploration and Production (Upstream)

Several local and multinational companies are currently active in the exploration and production of natural gas. The increased emphasis of the government on the gas sector has resulted in an increase of 16.7% in original recoverable reserves from 32.53tcf in 1999 to 37.99tcf in 2000. Similarly, the balance recoverable reserves have also gone up from 20.61tcf in 1999 to 24.93tcf in 2000. Gas production during the year 2000 jumped by almost 10% from 744,942 million cubic feet (MCFt) in 1999 to 818,342 MCFt.

The increased production has been completely matched by a higher demand for natural gas. The power sector has witnessed increased fuel cost due to volatile international crude oil prices and no rains to support hydro-electricity generation. With gas as an indigenous source, power sector companies are increasingly considering the option of conversion to gas from oil. This has put pressure on supply, since demand for natural gas by other sectors is increasing concurrently.

Transmission and Distribution (Downstream)

As mentioned above, the demand and supply for natural gas are both rising, with demand expected to outstrip supply in the near future.

But to meet the rising demand, the GoP has to incur high infrastructure development costs for developing new gas exploration and production facilities for eventual transmission and distribution of natural gas to the end consumers. Total investment of Rs 162 billion is planned in the oil and gas sector by the Ministry of Petroleum, with Rs 93 billion expected from the private sector, and the remaining through the GoP's own resources. And to share the high cost of developing infrastructure, the GoP has recently increased the gas prices by 20% on average and removed subsidies to attract foreign investments in the gas sector. This, we believe, is the first leg of the three-phased program of doing away with all the subsidies in the gas sector. The fertilizer feedstock subsidy has not been removed this year, but is under consideration for revision.

The latest increase in gas tariff and increase in supply through higher production, we believe, will result in higher top line figures, especially for the government owned distribution companies SSGC and SNGPL. Supply of gas by SSGC to the fertilizer sector alone has gone up by 71 % from 10,665 MCFt in 1999 to 18,256 MCFt in 2000 and by 18.05% from 45,398 MCFt in 1999 to 53,596 MCFt in 2000 to power sector. Similarly, SNGPL has also seen a jump in supply to the power sector by almost 30% from 48,528 MCFt in 1999 to 62,729 MCFt in 2000. The transmission of gas by SSGC will see a further rise in FY2000 as it has started supplying 40 million cubic feet per day (mmcfd) gas to KESC's 1250MW Bin Qasim plant which could go up to 176 mmcfd in January 2003.

MARKET ROUNDUP
..	LAST WEEK	THIS WEEK	% CHANGE
Mkt. Cap (US $ bn)	5.58	5.43	-2.69
Total Turnover (mn shares)	332.46	523.82	57.56
Value Traded (US$ mn.)	203.94	350.33	71.78
No. of Trading Sessions	4	5
Avg. Dly T/O (mn. shares)	83.12	104.76	26.05
Avg. Dly T/O (US$ mn)	50.99	70.07	37.42
KSE 100 Index	1350.92	1324.41	-1.96
KSE All Share Index	854.07	840.07	-1.63

.Source: KSE, MSCI, KASB

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