results of companies also generated
substantial interest. Positive news inflow on the privatization of PSO
also contributed significantly to the bullish sentiment in the market.
With the expectation of the pre-bid conference on PSO next week, we
expect that the market will continue its bullish trend in to the next
week. However, we expect see profit booking to contain the overall
buying euphoria in the market.
MARKET THIS WEEK
With the earnings season in its lest leg, the market
continued its bullish trend as the KSE100 rose by 2.59% to close the
week at 2294 levels. The most noticeable thing during the week was the
contribution of KESC to the Index, which by virtue of its debt to equity
swap, resulted in an increased weightage in the Index.
Although all the major stocks got their fair bit of
share in the buying euphoria on the KSE this week, the Index pivotals,
that is PTCL, Hubco, PSO and Engro continued to dominate the market.
Among the second tier scrips, KESC and DSFL recorded major gains.
Investors reacted very positively to the financial restructuring news on
DSFL as the scrip gained 13% during the week.
The average daily volume increased by 30% this week
to 318mn share as against 245mn shares last week, with the volumes
rising considerably in the latter half of the week.
OUTLOOK FOR THE FOLLOWING WEEK
We expect the market to continue with its bullish
trend in the next week. However, with significantly higher badla
volumes, we expect profit booking to remain a key feature during the
next week. Also, the market is likely to factor in the political
situation, as the first session of National Assembly is likely to be
held on Nov. 6.
DAILY DRAMA
After a continued bull run, the Index finally went in
to a correction mode as the Index shed 29 points on Monday to close the
day at 2207. All the key scrips experienced declines as investors
decided to book profits. Fauji Fertilizer's 3Q02 results also failed to
excite the market as the company did not declare any dividend.
The correction proved to be short lived as the Index
edged up marginally to close the day with an improvement of 6.8 points
to 2214. Although the market remained lack luster, expectations of
quarterly results of PTCL managed to create some excitement in the
market.
Positive news flow on privatization of PSO changed
the entire mood of the market as the Index gained 38 points on Wednesday
to close the day at 2252. PTCL also attracted considerable attention
after the company announced its 3Q02 results, registering a 17% YoY
improvement in its bottom line. The increased interest was also evident
in the volumes, which increased by 79% to 357mn shares.
The increased investor interest continued on Thursday
as volumes soared to 454mn shares, crossing the 450mn mark after a
period of 7 months. Brisk trading was seen in PTCL, Hubco and Dewan
Salman. DSFL recorded handsome gains as the market took the financial
restructuring news very positively and ignored the poor financial
results of the company. The index gained another 26 points on Thursday,
closing the day at 2278 levels.
The buying euphoria continued on Friday as the Index
ended the day with a gain of 16 points to close at 2294 levels. The
Index managed to cross the 2300 mark but could not sustain above this
level. PSO attracted considerable interest on rumors of pre-bid
conference for privatization of the oil giant. Engro also attracted
considerable investor interest on the issuance of take over law.
Although volumes dropped by 24% compared to Thursday but remained strong
at 347mn shares.
EARNING
SEASON: WHERE ARE MY ROSES?
Well, this time earning season came without roses!
Though we have seen majority of the companies showing massive earning
jumps (YoY), in reality these companies seem to be going into a slower
phase or trying to boost their earnings via factors other than
operations. Market also seems to be over-looking these imperfections and
is digesting these results without a pinch of salt. The sales volumes of
the companies are slowing down, margins are under pressure and bottom
lines are also showing confusing trends if we make comparison on QoQ
basis.
On the other hand, the market forces have taken these
results very positively. In general, the punters are trying to draw
positive conclusions even after the announcement of these results. In
our opinion, this is unfair with the fundamental approach of valuations
and market will eventually adjust this anomaly. How soon will that
happen, remains a million dollar question, but we are sure about our
understanding of the market valuations at the current levels.
Before going through possible triggers that can
affect the market performance in the short to medium term, we will talk
about the results that have recently been announced and had significant
flaws in terms of investors' understanding about these:
THE UNDERLYING MESSAGE FROM THESE RESULTS
Following are our comment on some of the key result
announcements:
• ICI RESULTS.
Our
dear retail investors were robbed off their very dearly earned money
through speculative investing in ICI. This time too, the bottom line
numbers of ICI were leaked which caused a major bull run in the stock.
Eventually this bubble was burst when company reported a 772% QoQ
increase in profits on account of PkR1bn+ tax write-backs. The entire
amount was not backed by cash; thus if any of our investor is thinking
that the company will pay any amount out of this, should revisit his
investment strategy.
• PTCL.
The results announced by the company are impressive if we look at the
YoY performance as the company has been able earn 18% higher profits.
However, QoQ performance is disappointing. Fine, we also agree with the
general consensus that 4Q numbers generally do include adjustments, but
one should not over-look the slowdown in the top line.
• PSO.
We are not denying the fact that PSO did tremendously well on YoY and
QoQ performance. However, it has underperfromed Shell in terms of
earning expectations and actual announcement in its 1QFY03. From the top
line numbers, it is quite apparent that company is also experiencing a
slowdown in volumes. Moreover, gradual de-regulation is also having its
impacts on the operations of the company.
• UNILEVERS.
Though a bit marginal, but this defensive consumer play is also moving
through a relatively slower phase. In our opinion the initial hype of
Afghanistan is fizzling out with more focus of other regional players
into that market.
• ENGRO.
Engro's
results are also somewhat misleading in the sense that the entire profit
is not coming from the core urea business. Rather the company's emphasis
over the marketing of DAP fertilizer and the presence of relatively
higher margins in this industry is the causative factor behind the
exceptional performance of the company during 3QFY02.
What should the market do about these?
We believe that market needs to adjust these earning
anomalies with a pessimistic view on the share prices of these stocks.
The fact that market needs to realize that earning quality of these
companies have seen some deterioration during last quarter, which needs
to be adjusted respectively. We are not saying that these companies are
not worth investing, however, the most recent trend is slightly bad and
the investors need to adjust these bad developments in the stocks of
these companies.
In terms of market direction in the short run, we are
of the opinion that investors' power to purchase shares will continue to
dominate the fundamental power of the stocks. This means that we may see
some further improvement in the index level from 2300 onward, however,
political uncertainty and subsequent implications of this over the
economic performance of the country will eventually send negative
signals to the market.
What should the investors do?
We do not think that pushing of further bullish
thoughts would be an option for any investor in the near term. In fact
the signs are already appearing that if the market is not at the top, it
is very close to peaking off. Thus, bringing in fresh investments into
the market at this level may be dangerous. The safest investment
strategy at this juncture would be to book profits and wait for the
market to realize the fundamental negative developments.
MARKET ROUNDUP |
| .. |
LAST WEEK |
THIS WEEK |
% CHANGE |
|
Mkt. Cap (US $ bn) |
9.17 |
9.41 |
2.62 |
|
Total Turnover (mn shares) |
1222.32 |
1591.77 |
30.23 |
|
Value Traded (US$ mn.) |
800.68 |
1066.15 |
33.15 |
|
No. of Trading Sessions |
5 |
5 |
|
|
Avg. Dly T/O (mn. Shares) |
244.46 |
318.35 |
30.23 |
|
Avg. Dly T/O (US$ mn) |
160.14 |
213.23 |
33.16 |
|
KSE 100 Index |
2236.76 |
2294.63 |
2.59 |
|
KSE All Shares Index |
1393.31 |
1429.10 |
5.58 |
