Weaving and Made-ups. After going through a period of turmoil
in the 1990s, the sector has turned around during the last few years. In spite
of being such an important sector in the economy, the textile sector has been
unable to demonstrate its weight in the stock market largely because of: I)
small size and lack of proper management; II)
poor disclosure of information which makes most investors wary, and III)
poor dividend payout history. For this reason we prefer only the larger textile
companies, and Nishat Mills is our top and currently the only pick in the
sector.
Textile is the single biggest sector in Pakistan accounting
for nearly 60% of total exports, 46% of manufacturing and 38% of employment. As
the spinal chord of the national economy, textile sector offers not only
significant investment opportunities in itself, but also has an impact on other
sectors such as financial, energy and fertilizers. However, owing to a number of
issues faced by the sector in the late 1990's, investor interest in the sector
has considerably declined in the stock market. At the Karachi Stock Exchange,
the textile sector comprises 30% of total listed companies (234 companies) and
accounts 5.32% of total market capitalization. At the end of FY2002, there were
a total of 354 textile companies in the country with 8.8mn spindles, 145,000
rotors and 10,000 looms.
THE HISTORY
The textile sector has evolved through numerous stages over
the last six decades. During the 1960's before the green revolution, the
spinning sector grew at only a modest rate. Political uncertainties in the
1970's and the nationalization of most large industries resulted in the
stagnation of industrial growth in Pakistan and the growth of the textile sector
slowed down during this period. The textile sector entered its boom period from
1984 to 1992, when a global textile boom and rising international cotton and
yarn prices coupled with comparatively lower local prices due to bumper cotton
crops, led the local textile to grow at a CAGR of 17% during this period.
Successive governments also placed considerable emphasis on the growth of the
textile sector especially in the value added areas.
From 1992-1998, the textile sector faced considerable
problems due to over capacity, lower cotton and yarn prices in the international
markets and consecutive bad cotton crops, which led to the escalation of local
prices. At the same time competition from India and China increased considerably
as a result of devaluations of their currencies and the opening up of their
markets. Thus, not only were margins being squeezed but export share was also
eroding.
Since 1998 to 2001, considerable improvement in the cotton
crop and some growth in the international textile demand brought some turnaround
in the sector. At the same time, massive devaluation in the Pak Rupee by nearly
40% during this period, resulted in significant improvements in margins and the
sector as a whole was considerably profitable.
MARKET REVIEW: 100% YEAR TO DATE GAIN AT THE KSE
High liquidity and successive decline in interest rates have
made the KSE the most attractive investment avenue. The Index recorded almost
100% gain on a year to date basis on Thursday, however, profit booking towards
the end of the week clipped the gains to a little extent. Cut in coupon rates of
3, 5 and 10 year PIBs was the major economic event whereas formation of the
Sindh Government, which completed the second leg of the political process, was
the major event as far as the political front is concerned. Sentiments remain
bullish as the market remains driven by high liquidity and attractive dividend
yields. However, with calendar year coming up close, we expect some profit
booking to take place.
MARKET THIS WEEK
Political and economic factors both came in to play during
the current week, which boosted the already prevalent bullish sentiment in the
market. The cut in fixed income securities has further increased institutional
interest in the stock market, where dividend yields are irresistible. Both
institutional and retail investors participated actively in the market as
average daily volumes during the week rose by 29% to 378mn shares.
OUTLOOK FOR THE FOLLOWING WEEK
Although the Index has risen by almost 3% during the last
week, the market is likely to remain range bound between 2475-2550. . With the
year-end up ahead, we do expect some profit booking by institutional investors,
and a little squeeze in liquidity, as banks are likely to adjust their balance
sheets due to year-end factor.
DAILY DRAMA
The Index soared by 36.24 points to close on 2,488 on Monday
as the formation of the Sindh government completed the second leg of the
political process. However, the basic thrust came as a result of reduction in
coupon rates of 5, 7 and 10 year PIBs, which were reduced by 200bps each. In
view of the declining return on fixed income papers, the KSE attracted
substantial interest from the institutions, owing to high dividend yields
prevalent in the market. Volumes grew by 5% to 355mn shares as against volumes
of 337mn shares on Friday. Hubco was the pick of the market as volumes rose to
155mn shares.
The bullish sentiment continued on Tuesday and the Index
managed to create an 8 year high level of 2519. However, profit booking
prevented the Index to close above the 2500 marks and the Index closed at 2,497.
Volumes rose further by 1.4% to 360mn shares.
The bullish sentiment subdued to an extent as profit booking
continued to be the order of the day on Wednesday as the Index recorded a low of
2,461. However, institutional buying towards the end of the trading hours pushed
the Index up 3.85 points as the Index closed at 2,501. Hubco, NBP and SNGPL were
the top picks. Volumes however, shrank by almost 3% to 350mn shares.
Thursday was a historical day as gains enabled the Index to
record a historic 100% year to date increase. The Index, which at one point had
risen by as much as 71 points, closed the day at 2535 levels, up by 34 points.
PTCL, which got ex dividend on Thursday, attracted substantial interest as the
stock rose by PkR1.15/share on volumes of 115mn shares. Engro and Sui North were
the other top performers as both the stocks rose by over a rupee a share. The
volumes rose to a high of 505mn shares, up by 44%.
Finally, the much anticipated technical correction took place
as the Index lost 10 points on Friday to close at 2,525. Hubco and PTCL remained
the most active issues of the day, attracting volumes of 108mn and 56mn shares
respectively. However, it was Engro, ICI and Fauji that turned out to be the
major gainers with all three stocks gaining over a rupee a share. Volumes
declined by 37% to 318mn shares.
MARKET ROUNDUP |
| .. |
LAST WEEK |
THIS WEEK |
% CHANGE |
|
Mkt. Cap (US $ bn) |
9.50 |
9.58 |
0.84 |
|
Total Turnover (mn
shares) |
1461.91 |
1891.00 |
29.35 |
|
Value Traded (US$ mn.) |
890.78 |
1366.00 |
53.35 |
|
No. of Trading
Sessions |
5 |
5 |
|
|
Avg. Dly T/O (mn.
Shares) |
292.38 |
378.20 |
29.35 |
|
Avg. Dly T/O (US$ mn) |
178.16 |
273.20 |
53.35 |
|
KSE 100 Index |
2452.24 |
2525.00 |
2.97 |
|
KSE All Shares Index |
1528.58 |
1571.16 |
2.81 |
