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THE KASB REVIEW
STOCK MARKET AT A GLANCE

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

Updated on May 05, 2001

The KSE Overview: Giving up Gains

The Index closed at 1371 on Friday, compared to 1365 previous Friday. The Average daily volume was down to 57 mn shares vs 100 mn shares last week(but this was a 4 day week). Average badla rates further slipped down as did badla volumes. Neglect. Apathy. Frustration. Boredom. These are the words conjured up by the market behavior over the last several weeks. In the words of one participant, the Pakistan market appears to be going nowhere in a hurry. And why may that be, one may justifiably ask?. We could of course, rationalize the behavior of the market by giving umpteen reasons including excess of scrips versus lack of demand as a technical reason, increase political uncertainty after the recent upsurge in activity by the so called ARD movement, reduced punter interest in the equity market due to greater focus on the forex market, reduced financial sector lending for stock market operation because of sharp rise in private sector credit off-take from banking system, mopping up of extra liquidity by the State Bank in order to meet the agreed monetary expansion guide lines with the IMF and the usual fear of T+3.

However, these words would merely be excuses even if some of the above points are valid to a greater or lesser degree. The fact of the matter is that the market has gone nowhere in the past three weeks and the current market sentiments appear to be that it is not going anywhere in the near future. In fact one school of thought believe that as the market have tried and failed to break upward from the 1400 level it increasingly indicate that the narrowing triangle which is the current trend of KSE 100 Index may be preparing to breakout to the downside.

We agree that such a risk should not be discounted off hand and certain unexpected triggers (for example no interim dividend from Hubco, below expectation full year results of FFC and MCB and lower growth Engro's first quarter earnings), could damage market sentiment and cause some sell off. At the same time in our opinion based on fundamental valuations of the listed corporate sector where we envisage 18-20% EPS growth in FY02, the downside of the market is likely to be not much further then low 1300 levels approximately 5% lower than the current closing level 1370. At 1300 Index level, our FY02 PER falls below 5X and historically the market has invariably and fairly quickly rose whenever such low valuation level have been hit.

As a fundamental analysis driven house our focus remains firmly on the corporate earning outlook, intermediate term valuation, and expected future of sectoral and macro level operating environment. At the macro level we expect the GDP growth in first half of fiscal year 2002 to remain subdued with the agricultural sector being the main drag. At the same time, private sector investment activity is also expected to subdued during the next 6-8 months as the accountability and documentation drive continues and with it the concurrent flight of capital. We believe however, this to be a transitory yet necessary phase if the economic players are to realize the changed policy paradigm in the country. Furthermore, we believe that it is also a question of perspective like the example of glass half full or half empty.

Power Sector

A recent news report claims that the government will pay around US$2.5bn to (Independent Power Producers) IPPs over the next 3 years and that the government has already paid PkR92bn during 1997 and 1998 to the IPP's under the various agreements of the 1994 power policy. These numbers are attributed to a report related to the energy sector restructuring program loan documents exchanged proportedly between the Government of Pakistan (GoP) and the Asian Development Bank (ADB).

According to the news report, bulk of the payments made so far to the IPPs relate to Hubco and KAPCO that together have a combined capacity of 2900MW. These payments are said to have adversely affected government's financing of public sector power enterprises (which we presume are WAPDA and KESC). Contending that the US$0.65/KWh tariff rate to IPPs is unaffordable for a country like Pakistan, the report apparently contends that WAPDA and KESC are facing serious liquidity problems with the latter defaulting on its future payments to PSO, OGDCL and oil refineries. WAPDA's default to National Refinery Limited (NRL) is claimed to have caused NRL to consequently default on its loan repayment to the Islamic Development Bank. The report further adds that the 1994 power policy's incentives brought 19 IPPs to Pakistan which invested a reported US$3bn in the country.

What are the implications of the points raised in the above-mentioned report? It seems that what is being shown here is the long-term inability of the government utilities and, by implication, the government to continue making the required payments to the IPPs under the 1994 Power Purchase Agreements (PPA). This should be a matter of serious concern to the investors.

Regular readers of our Review will recall that we have always maintained that the 1994 Power Policy was essentially flawed at a basic level. The overall economic growth and energy demand projections were overly optimistic by both the GoP as well as the World Bank which may be called the moving spirit behind the entire power policy of Pakistan. We would not like to dwell upon the level of competency in the government corridors when the power policy was actually being formulated. Both seasoned WAPDA engineers and Independent analysts/commentators highlighted the risks of severe liquidity crunch to the utilities of the proposed policy. But the government of the day seems to have steamrolled over these objections. We are more surprised at the apparent insufficiency of the due diligence process at the World Bank itself. The World Bank Group (WBG) has been involved with Pakistan for as long as one can remember. They have on the ground presence in the country and have been associated with mega projects. One would therefore expect the WBG to have had a better handle on Pakistan's public sector revenue generating potential, overall economic growth and hence the potential risks of liquidity crunch in a low growth scenario one which has in fact materialized.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

5.59

5.60

0.18

Total Turnover (mn shares)

501.90

229.11

-54.35

Value Traded (US$ mn.)

295.21

120.10

-59.32

No. of Trading Sessions

5

4

 

Avg. Dly T/O (mn. shares)

100.38

57.28

-42.94

Avg. Dly T/O (US$ mn)

59.04

30.03

-49.15

KSE 100 Index

1364.44

1370.79

0.47

KSE All Share Index

865.37

868.84

0.40

.Source: KSE, MSCI, KASB



ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

3514.59

+20.11

0.58%

Hong Kong

Hang Seng

13390.99

-327.15

-2.38%

Singapore

Straits Times

1714.84

-19.39

-1.12%

Sydney

S&P ASX 200

3340.5

-9.50

-0.28%

Tokyo 

Nikkei

14421.64

-3.82

-0.03%

.



EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

6138.28

+49.11

0.81%

London

FTSE

5870.3

+104.50

1.81%

Paris

CAC

5455.55

-1.52

-0.03%

Dow Jones

Industrial

10951.24

154.59

 

Nasdaq

Composite

2191.53

45.33