Updated on May
THE KSE OVERVIEW: BOBBING
OVER 1900 LEVELS
The market closed at 1904 level this week, up 2.4%
from last week's closing at 1856 levels. Although there was an air of
repression on the bourses during the week, the average daily volume
increased to 126 million shares, compared to 114 million shares last
week. With the referendum, followed by the Labor Day holiday falling
plumb in the middle of the week and a strike, the market remained on
edge and only just managed to close above the 1900 psychological
On Monday, the day before the referendum, the
market rose five points and broke the 1900 barrier, following the
Supreme Court's endorsement of the presidential referendum order.
Investors felt that they would not be threatened by mid-term changes
again and hence could look forward to the fact that economic and
political reforms would continue unabated over the next five years.
The bearish sentiments during the day resulted in PTCL and Hubco
gaining 2.9% and 3.5% in value. Further, PSO's price increased by 1.8%
during the day following updates on its privatization process and in
the wake of the markets reaction to a second interim dividend of 20%.
On Tuesday, the day of the referendum, the market
ended two points lower at 1899. With the May Day holiday the next day
and the referendum during the day, a section of investors decided to
take profits. However, the selling was absorbed easily as brokerage
firms bought at dips for their clients with longer-term investment
horizons. Adamjee Insurance, Lever Brothers, Packages and BOC Pakistan
were amongst the gainers during the day, while PTCL, PSO, ICI
Pakistan, Shell, PSO and Nestle Milkpak faced correction in their
prices at the bourses.
On the third trading day of the week, which
happened to be Thursday, the MQM declared a strike in protest of the
killing of two of its leading members. With news of three explosions
and threatening phone calls demanding closure during the day, the
market slipped another three points and ended an hour and fifteen
minutes earlier (1:00 pm relative to usual timings of 2:15pm) at 1896
levels. Both PTCL and PSO lost value during the trading day by 0.5%
and 1% respectively, while ICI's prices also continued to languish.
However a second interim dividend of 75% by BOC Pakistan, 45% final
dividend by Packages and 20% by General Tyre and Rubber Company roused
buy side interest, and limited the decline of the market.
On Friday, the market broke the psychological 1900
level barrier for a second time during the week and closed for the day
9 points higher. Though Friday was in essence the first normal trading
day after the tremendous results of the referendum, it was also the
last day of the week and traders resisted from taking up too many
positions. Positive news on PTCL's agreement with NASDAQ listed FLAG
telecom and the Privatization Commission's announcement that PSO would
be privatized by August 31 contributed to the increase in the prices
of the stocks that closed for the week 2.1 % and 0.49% higher
respectively at PRs19.10 and PRs 163.10. Hubco's price also increased
during the day, and resulted in cumulative increase in value over the
week of 5.6% at PRs25.60.
Overall though the referendum has instilled more
confidence in the bulls, the bears feed upon potential agitation by
the opposition parties. The latter were fuelled by Benazir Bhutto's
latest announcement that she will indeed return to Pakistan and be a
contender in the upcoming October elections.
Though foreign investor buy side interest in the
market is still largely missing, the two-day meeting of the IMF-World
Bank sponsored Pakistan Development Forum in Paris has broken the news
that the World Bank will commit US$1bn to the country in soft loans.
Further, in the World Bank's country report, the institution has
observed, "... how much has been accomplished so quickly."
The general sentiment at the seminar was that if the reform effort is
to continue unabated and the irritants to foreign investors are
removed, its country risk should continue to decline and hence
Pakistan will potentially become an attractive proposition.
We believe that the sea-saw in bearish and bullish
opinion is likely to last until the October elections, after which a
more stable political and economic outlook should form a platform for
a sustained long- term growth in the value of the Index. In the
meantime, we believe that sustained interest is likely to be in stocks
with inherently strong fundamentals and growth potential as well as
Over a more immediate timeframe, we continue to
believe that the market will remain range bound between 1820-1900 over
the next 4 weeks, with movement dictated primarily by liquidity
SELLING CELL PHONES
A GLOBAL WIRELESS BECKONING
What is the wireless threat for the other more
traditional telecommunication medium, i.e. fixed wireline? Cellular
telephony is the fastest growing telecommunication service form in the
history of telecommunications. Wireless is helping telecommunications
evolve faster than ever before. According to the Telecom Status Report
for 2000-01, released by the Economic Research wing of the Pakistan
Telecommunication Authority, there are 35 markets in the world, where
the transition from wireline to cellular has already begun, and the
number of cellular subscribers is higher than wireline subscribers.
Further about 500,000 people worldwide sign up for a cellular
subscription everyday and consequently total cellular subscribers in
the world approximately double every year.
THE PAKISTANI CELLULAR STORY
Pakistan has just recently crossed the threshold of
the cellular industry's inherent exponential growth. Cellular growth
has been massive over the last year and a half. Penetration grew by
100% in FYO1 with the introduction of the Caller Party Pays regime in
November 2000 and the aggressive entry of the PTCL's cellular
subsidiary Pak Telecom Ltd., in February 2001. Consequently cellular
subscribers grew to 700,000 subscribers by June 2000, as opposed to
only 350,000 a year ago. It is estimated that by June 30, 2002
cellular subscribers will cross the million mark.
MEET THE PLAYERS
There are at present four brands fighting for
market share in the cellular industry in Pakistan. Private sector
operator Mobilink along with Paktel and Instaphone (the latter are
under one management) compete with PTML. Mobilink and PTML offer GSM
technology, while Paktel and Instaphone possess Amps technology.
According to the Telecom Status Report, PRs4,634mn
was invested in the cellular industry in 2001. Consequently the
cumulative investment in the sector grew to PRsl8.64bn in FY01,
relative to total investment of PRsl4.06bn by FY00. The lion's share
of the investment in 2001 may be attributed to the setting up of a
US$60mn GSM 900 network by PTML.
INCREASING COMPETITION: RUNNING
TO STAND STILL
It seems increasingly probable that investment in
the sector is likely to remain high with the increasing competition in
the industry, forcing cellular service providers to keep adding and
upgrading capacity to protect market share, or in other words running
to stand still. Mobilink has signed an agreement with a Chinese
telecoms group, ZTE Corporation, to develop and improve the company's
GSM network. Mobilink will purchase GSM infrastructure from ZTE
Corporation worth US$200 million over a period of f~ve years. PTCL too
has contracted with Nortel Networks for a US$60 million network
expansion, which is expected to come online in July 2002. Further,
early this year Instaphone upgraded its service to digital amps, and
there is news that Paktel is also expected to graduate to time
division multiple access (TDMA) soon.
Mkt. Cap (US $ bn)
Total Turnover (mn shares)
Value Traded (US$ mn.)
No. of Trading Sessions
Avg. DlyT/O (mn. shares)
Avg. DlyT/O (US$ mn)
KSE 100 Index
KSE All Shares Index