THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated July 27, 2002

 

The market was stable despite major turmoil in international bourses. Although, investors mainly remained on the sidelines both bulls and bears flexed their muscles to an extent, which lead the KSE-100 to breach the psychological barrier of 1,800 points during the week and fall back to 1790 levels.

 

News that had impact on the index, were the killings in Kashmir, rumors of further progress on the privatization of PSO and potential declaration of final dividend by Hubco.

THIS WEEK'S PERFORMANCE

Although, the turbulence in the international markets, with the Dow Jones declining to 7,489 points during the week made the investors vary, the KSE-100 index remained largely stable closing at 1783.05 points, reflecting marginal decline of 0.86% over the previous week. With the investors staying at the sidelines average daily volumes declined by 26.84% over last week to 58.31mn shares. We believe that the stability in the index indicates that the investors do not expect a spillover of the international disturbance, however, declining volumes suggest that they are being cautious about making further investments. The scrip of interest this week was PSO, which declined steadily all week to close at PkR138.95, 2.35% lower.

The average badla volume increased marginally this week, however the badla rates remained largely unchanged.

OUTLOOK FOR THE COMING WEEK

With the half yearly results and dividend announcements of Fauji Fertilizer Company and Engro Chemicals Limited expected early next week, we believe that these scrips will attract some investor interest. In our opinion, few large investors have built considerable holdings in some key stocks, which may have become unmanageable for them. We believe that if these investors decide to reduce their holdings there might be some volatility in the KSE-100.

THE DAILY DRAMA

Despite turmoil in the international stock markets, KSE-100 crossed the psychological barrier of 1,800 points on Monday, closing at 1,801.90 points. Hubco and PTCL were volume leaders, gaining 35paisa and 10paisa, respectively.

There was an initial scare in the stock market Tuesday after the news of a 235-point decline in the Dow Jones in wake of WorldCom's bankruptcy. However, timely support from institutional investors at lower levels resulted in the KSE-100 shedding only 7.03 points to close at 1,794.87 points. There were no major losers with the Large Caps remaining mostly stable.

The lack of investor interest, due to the developments in the international bourses, lead to a decline in trading volumes on Wednesday, which fell to 43.77mn shares. The KSE-100 declined by 1.92 points to close at 1,792.95 points. There was an attempted intra-day rally but due to the lack of follow-up support the early increase could not be sustained.

Thursday started with an attempted rally prompted by news of possible dividend declaration by Hubco and the KSE-100 reached an intra-day high of 1,804.18 points. However, lack of follow-up support along with the bears flexing their muscles, after the news of grenade attacks in Kashmir, resulted in the KSE-100 to close at 1,790.26 points.

Trading on Friday was slower with the volumes declining to 32.65mn shares. Decreases in share prices of PSO and KESC lead to a decline in the KSE-100, which decreased, by 7.20 points. The volume of carryover transactions was largely unchanged with PTCL, Hubco and PSO being volume leaders.

SPECIAL REPORT: EARNING SEASON - FULL OF ROSES!

Though the next few weeks may be nightmarish for analysts owing to their stretched office hours, however, the Pakistani investors will be the most delighted community as majority of their wishful dreams would come true. In line with the narrow time line given by the SECP, the companies will have to come up with their HY, Quarterlies and FY results within a narrow time frame. Even big fancies can try to speed up these result announcements to win the prestigious KSE best companies awards, which also considers the timing of the announcements as part of its evaluation process.

We are of the opinion that this result spree will bring the much-needed excitement into the market. The fundamental triggers that have been generally downplayed by the market punters in wake of various speculations could attract relatively longer-term investment flows. Since the market is experiencing a gap on this side after the massive liquidations of foreign investors over last 2-3 years, the gradual formation of a long-term investors' base will be the key factor in making for stable market performance in the medium to long term.

How will these results affect over-all sentiment of the market? We think, favorably. Two reasons on which we can bank upon: (I) the results will provide the much needed triggers to the market to move on; and (II) most of the results are carrying positive surprises. Since the market has yet to discount these surprises, we expect the investors to respond positively to these announcements.

Are these surprises really "surprises"?

The followers of efficient market hypothesis will raise a question here that if we know these surprises and other investors as well, why should market react to these once these appear in black & white. Our answer is that KSE is not strictly following fundamentals at the moment. In the recent past there had been such incidents that lead to an impressive performance from the KSE on positive surprises:

•Hubco's extraordinary interim dividend. Hubco's last dividend announcement of PkR4/share was almost 12.5% higher than market expectations and the stock went up significantly soon after the result announcement.

•Margin revision in PSO. Similarly, the margin revision story of PSO has been on the scene for ages, however, the market reacted sharply to the news when it hits the general public. In almost 2 weeks PSO climbed up to PkR 170 from PkR96 per share.

•Extraordinary results by Nestle & Packages. The market reaction to extra-ordinary jumps in profits of Nestle & Packages was significant. The prices went up sharply after the result announcement.

•Last year's PTCL results. A case in point is also PTCL's last year's results where the company posted a massive jump in profits and market responded positively to this.

•National Bank of Pakistan's results. Though the initial reaction from the investors was poor on account of "quality of earnings" issues but later on the market responded well as the improvement in earnings is recurring in nature.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.04

7.00

-0.58

Total Turnover (mn shares)

409.83

291.57

-28.85

Value Traded (US$ mn.)

237.75

173.94

-26.84

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

81.97

58.31

-28.86

Avg. Dly T/O (US$ mn)

47.55

34.79

-26.84

KSE 100 Index

1798.57

1783.05

-0.86

KSE All Shares Index

1135.30

1127.09

-0.72

Source: KSE, MSCI, KASB