KSE-100 index to breach 1500 barrier by end
By SHABBIR H. KAZMI
Nov ,19 - 25, 2001
Even before September 11 the KSE-100 index was
touching 1200 lows with the possibility of a downward plunge. But
remarkably the market declined and bounced back sharply. This is
definitely not in keeping with any normal market's reaction to an crisis
in the region, and certainly not the KSE which has been previously
demonstrating sharp movements in reaction to political developments.
Over the last many weeks, the KSE has shown remarkable resilience and
experienced an unexpected sharp rebound which as yet does not seem to
have lost steam.
A number of factors seem to be responsible for the
persistent upward movement of the KSE-100 index. The index would have
shown higher gains had profit taking was not common. While the upward
movement in prices of volume leaders was understandable, bullish
sentiments in Adamjee Insurance was an evidence that market manipulators
were also very active. After resolution of HUBCO dispute they were in
dire search of some scrips and Adamjee was an instant pick. Though,
there is a forecast that there may be change in the composition of Board
of Directors, even before the annual general meeting, the point which
continues to haunt is mounting losses, an outcome of not following good
The factors which have contributed to revival of both
institutional and retail investors in equities market are: 1) the GoP
and SECP efforts to deploy large funds through market support funds, 2)
improved sovereign rating, 3) a spate of foreign buying. However, some
analysts attribute the upward movement of index to announcement of
financial results and attractive yields and a forecast for yet better
results for the year 2002.
Most of the volume leaders and even second tire
companies have posted not only good results for the year 2001 but have
also announced attractive dividends. The other sectors which were able
to attract attention of investors were: energy (comprising of oil and
gas distribution companies also), automobile, banking and fertilizer.
All these sectors continue to enjoy strong fundamentals. However,
textile sector has not been able to attract investors as yet.
There are clear indications that textile sector will
not pay the similar dividend it had paid for the year 2000. However, the
year 2002 is expected to be a good year, mainly due to stable cotton
prices. After September 11, textile exports have been affected, but in
year 2002 higher exports are expected due to increase in textile quota
ceilings by the European Union (EU) and the US. The EU has already
reduced duties and increased quota ceiling by 15 per cent. The same is
also expected from the US.
The earnings potential of gas distribution companies
has improved due to rise in volume. For the year 2001 both the Sui twins
have announced dividend after a long time. Profitability of oil
distribution companies has been under pressure due to declining POL
demand. But the recent reduction in POL prices may help in containing
further decline. Automobile sale has been high due to car leasing
programme. Now a large percentage of fresh business of leasing companies
consist of car financing. However, this policy has helped in higher
sales volume of small cars.
Though, earnings of commercial banks are expected to
come under pressure due to shrinking spread, the decrease in corporate
tax and increase in borrowing of private sector are positive signs.
Fertilizer sector has witnessed a robust demand and no probability of
increase in feedstock price, in the short term, is expected to improve
overall profit of these companies. The reduction in interest rates is
also expected to have positive impact on the earnings of leasing
Sales volume and profit margins of companies involved
in consumer goods are expected to improve due to: increase in disposable
income of rural population, decrease in smuggling and larger purchases
for Afghan refugees. Another factor which has the potential to improve
disposable income/per capita income is greater spending on developmental
projects by the GoP.
After identifying the key sectors which offer
opportunities in equities market, equities analysts also warn retail
investors to refrain from herd mentality. They suggest that investors
should make thorough investigations about the companies before they buy
their shares. They also warn that investors should not be carried away
by the market manipulators. Investing in blue-chips is much easy but at
the same time they should expand or keep their investment portfolio
Saying this much, it is also necessary to ask the
regulators to play their due role. Some analysts say that the watchdogs
do not awake till a problem gets out of control. They only do the job of
fire fighters but do not pay any attention to the smoke. Ensuring good
governance is a must for the protection of small investors, who offer
the largest investment potential.