THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated July 13, 2002

 

MARKET REVIEW: YAWN... TAKE A NAP

If you were Rip Van Winkle and slept through the week you would not have missed much!

 

The KSE-100 Index was characterized this week by low volumes and sluggish trading. The market declined marginally by 0.96% to close at 1783.17, as compared to 1800.48 last week. Although, there were some inflows from foreign investors during the week, the absence of retail and institutional interest failed to support the market. As mentioned above, the average daily volume for the week at 40.53mn shares was dismal at best and was less than half of what was recorded last week.

The question that arises is that what was the reason for this sudden drop in trading activity? The answer is simple: nothing attracted investor interest.

On Monday, the market opened at 1800.48 and though the day's trading started on a higher note, the index fell marginally by 0.96 points to 1799.52 by the end of the day. Although total volumes were relatively higher at 67.12mn, on a stand-alone basis trading activity remained subdued. Hubco, PTCL and NBP were the volume leaders and while the prices of the first two remained almost unchanged, NBP declined by 65paisa or approximately 3%. We believe that the decline in the price of NBP was largely on account of bonus issue instead of cash dividend.

Volumes fell further on Tuesday to 54.02mn shares; a decline of approximately 20% relative to the day before. As a result, trading remained listless though PTCL and Hubco remained the major contributors to the volumes traded. The index fell by 4.02 points to close at 1795.50 led by marginal decline in PTCL and Hubco share prices and a 4.25% decline in MCB's share price. The decline was somewhat offset by increase in price of SNGPL. The news of the PkR10 rise in fertilizer prices did evoke some interest but the effect was only apparent on FFC, which increased by 20paisa.

On Wednesday investors kept away again and volumes fell to a six-month low of 29.96mn. The KSE- 100 declined by 1.52 points to close at 1793.98 levels. The lack of investor interest along with the indifferent attitude of institutional buyers was behind this minimal activity in the market. The bears ruled with 121 shares losing value while 88 shares increased in price. Although there were no major losers, the market on the whole remained depressed.

It was generally believed that announcement of the date for general elections would spark some interest in the market, but the volumes on Thursday continued to be low at 30.36mn shares. We are not surprised, since we believe that investors are more concerned with the relationship of the elected government with the Chief Executive as compared to who gets elected and when. The rumors of improved performance by NBP could have sparked investor interest, however, the postponement of the Board meeting further depressed the market. The bears continued to exert their power and the index declined by 10.81 points, closing at 1783.17 levels. Major losers were PSO (declining by PkR1.25), Shell Pakistan (declining by PkR1.75) and Pak Oilfields (declining by Pkr5.25).

At least Friday was noteworthy, though only in the sense that trading volumes at the KSE-100 hit a new low for the year at 21.20mn shares. The index closed at the same levels at which it opened at the start of the trading day. In line with the lackluster trend in the market during the week, the badla market also remained uneventful with badla rates varying from 7% to 8%.

MARKET STRATEGY

Though foreign interest has begun to show faint signs of some revival, we believe that the single most important factor that could propel the index out of its current sleepy state is positive news with regards to the standoff between Pakistan and India. On the other hand, we realize that this is not happening until after October, when the elections in held Kashmir are scheduled to be held. A more imminent development, which could add some life to the market is the upcoming release of half-yearly results, which we expect to be positive for most companies.

LEASING SECTOR REVIEW

Over the years the leasing sector in Pakistan has become tremendously competitive. Currently, the leasing industry is being affected by the general slowdown in business and investment activity in the country as well as the conservative approach used by banks to lend money. Furthermore, as banks have also started to fight for a piece of the pie, the relatively small players in this industry sector are finding it extremely hard to stay in competition and obtain financing at competitive rates from those very banks which are now their competitors. This, along with the fact that the requirement for shareholder's equity for any leasing company is now PkR200mn, has led Securities Leasing Corporation Ltd. (SLC) to not only give a 50% rights issue of its preference shares but also to enter in to a merger agreement with Lease Pak Ltd. (LP).

MECHANICS OF MERGER & RIGHTS ISSUE

According to news sources, both SLC and LP have agreed on a swap ratio of between 25 to 35 SLC ordinary shares for 100 LP ordinary shares. The final swap ratio is to be decided within the next 2 to 3 weeks. Assuming that a swap ratio of 3:10 is decided upon, SLC will have to issue 3,996,054 ordinary shares at PkR10 per share to cover LP's 13,320,180 currently outstanding shares.

As discussed in one of our previous reports, the 50% rights issue by SLC will result in the issuance of 5mn class I preference shares at PkR10 per share with a cumulative dividend of 15% per annum. These preference shares will be both convertible and redeemable.

The net effect of the above two transactions would be an increase in the shareholder's equity by PkR90mn plus the difference between the net asset value of LP and the par value of the newly issued SLC ordinary shares. As per our estimates, these transactions would increase shareholder's equity of the new entity to approximately PkR270mn, which would then satisfy all statutory requirements.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

6.99

6.91

-1.14

Total Turnover (mn shares)

515.67

202.66

-60.70

Value Traded (US$ mn.)

244.42

96.85

-60.38

No. of Trading Sessions

5

5

 

Avg. DlyT/O (mn. Shares)

103.13

40.53

-60.70

Avg. Dly T/O (US$ mn)

48.88

19.37

-60.38

KSE 100 Index

1800.48

1783.17

-0.96

KSE All Shares Index

1138.89

1125.83

-1.14

Source: KSE, MSCI, KASB