THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Jan 04, 2003

 

MARKET REVIEW: EYEING NEW LANDMARKS TABLE: KSE-100 INDEX
MARKET THIS WEEK

The market continues to breach every landmark. The

 

 

 

previous all time high level of 2661 has been history now and the market is heading towards new highs. The KSE-100 Index gained 219 points this week as the bulls continued to hold their grip on the market. Average daily turnover of shares this week increased to 501mn shares compared to 378mn shares last week. Hubco continued to top the list of most active stock with a cumulative turnover of 954mn shares during the week. The market crossed the coveted level of 2700 on the last day of 2002, making the total increase to 219 points over last week. The 34-point correction in the market on Wednesday provided a much-needed breather to the market. However, this correction proved to be short lived as the index bounced back on Thursday on the back of reduction in rates of National Saving Schemes.

OUTLOOK FOR THE FOLLOWING WEEK

Market is likely to continue with its bullish trend owing to the high liquidity in the market, which is expected to get a further boost on the back of maturity of PkR10-15bn worth of PIBs in the coming week. Considering the recent trend in the market where excess liquidity with institutions is continuously being channeled in to the stock market owing to low yields on fixed income papers, we expect a small portion of this newly gushing in liquidity to also find its way in to the stock market. The market is likely to remain infatuated with dividend yield plays, which include Hubco and Fauji Fertilizer. The earnings season, which is expected to start from mid of this month, is likely to generate substantial activity in the market and we expect growth stories to also come in to play on the back of result announcements.

FUNDAMENTAL CHANGES

Cut in effective yields of three, five and ten year PIB's along with a reduction in rates on National Saving Schemes were the major triggers for the market this week. While cut in effective yield of PIBs brought substantial interest from institutional investors, cut in rates of NSS proved to be another trigger for retail investors to get in to the market. As a result of this, overall investor interest further shifted towards the stock market where the average dividend yield of the market is still in the range of 10-12%, approximately 600bps higher than the yield on fixed income papers. On a stock specific basis, PSO gained sharply during the week after an upward revision in POL prices. There were also rumors that the Privatization Commission is likely to announce the date for pre-bid meeting for PSO. News of withdrawal of tax exemptions from oil-fired power plants resulted in creating a panic in the market as weak holders reduced their holdings in the share. However, the clarification by the company that it was not liable to taxation in Pakistan triggered another bull rally in Hubco's share which gained sharply towards the end of the week.

 

 

TECHNICAL OUTLOOK

Break of 2661 marked history in the making. This level would now be the key support area to sustain for further upward developments. The channel that the index is moving in currently, sets resistance around 2900 but since it is rising, levels would increase. Since levels are newly achieved key resistance would always be met on the change of a big figure. Therefore, the next resistance level is at 2800. The only technical risk is the highly overbought state of the market.

SPECIAL NOTE: KASB LAUNCHES ITS OWN INDICES!

CONTROVERSY ABOUT THE INFLATED INDEX LEVEL!

The recent run up at the Karachi Stock Exchange and the index breaching its lifetime high of 2661 has given birth to a controversy where each of the investor is debating whether this recovery is real or superficial. The fears of the investors are based on a very simple logic that share prices of majority of the stocks are half of what they were back in 1994 when index hit its record level. On the backdrop of this, we, Khadim Ali Shah Bukhari & Company (KASB) is launching its own indices. In an effort to monitor both the long-term as well as short-term market sentiments, we have constructed two types of indices, i.e., market capitalization based and price sensitive based. In both the cases, we have also tried to overcome the problems that the KSE benchmark is having. It is important to mention here that by doing this, we are not undermining the authority of the exchange to come up with its index, rather our sole focus is to provide more relevant and user friendly information to our readers who can then use this data in their decision making at the KSE.

KASB 100 INDEX - WEIGHT MARKET BASED INDEX

KASB 100 Index is an alternate to the existing KSE 100 Index and is comprised of all those 100 companies, which are currently included in the official benchmark index. However, the only different feature our index offers is the adjustment for the payouts. In our calculations, we are taking full market impact of the payouts. By full market, we mean that our index is simply based on the daily market capitalization, thus if the price of any stock is being adjusted by the market in line with its payout, our index captures this movement as it monitors the DoD change in the total market capitalization. In our calculation, we have also adjusted the periodical changes in the companies, which the KSE makes from time to time. In future we will also be making the changes in the companies in line with the KSE's inclusions and exclusions.

KASBP30 INDEX - PRICE SENSITIVE INDEX

This index is purely a price driven index. In its construction methodology, we have chosen the top 30 stocks on two basis: (I) the shares are widely traded on a daily basis, (II) majority of the active sectors get coverage in this index, and (III) all of them are among the top 50 market capitalization companies. Moreover, we have also brought the higher par value shares to the normal par value basis, like we assumed a 1:5 stock split for Unilevers. For comparison purpose, we are starting this index from a similar level where the KSE-100 Index was on January 1, 1997.

OTHER INDICES.

There are two more indices which we feel can help our investors in their investment management. First, an Investible market capitalization based index where we have constructed an index strictly on the basis of the Investible market capitalization of the stocks. This is a 50 stock index based on first 27 companies being the representatives of the sectors and remaining 23 companies coming from the top Investible market cap list. Second, a composite index, which we have constructed by clubbing the two indices, i.e., market cap and price based index on equal sharing basis. Both these stocks will be available to our clients on payment of a nominal annual subscription.

 

 

INFORMATION DISSEMINATION - FROM NOW ONWARD!

For the two indices, KASB 100 and KASBP 30 Index, we will be disseminating the values in our daily product, Morning Shout. While we are making arrangements to show it on our website, www.kasb.com, our investors can call us to get the latest level as this arrangement will take two weeks at least. For remaining two indices, our readers can contact us for the details of annual subscription etc.

Since index construction is a process that has too many dynamics to cover, we have tried to remain as simple as one can in our construction process. However, if any of our valuable fund managers finds some deficiencies in the process, we will welcome any comments on this subject. We should not forget one thing that our market is still in infancy stage and we have to come up with such initiatives on our own to facilitate the investors who have finally started realizing the true potential this stock market can offer them in the present day of scarce money deployment opportunities.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

9.58

10.37

8.25

Total Turnover (mn shares)

1891.00

2509.00

32.68

Value Traded (US$ mn.)

1366.00

2121.00

55.27

No. of Trading Sessions

5

5

Avg. Dly T/O (mn. Shares)

378.20

501.80

32.68

Avg. Dly T/O (US$ mn)

273.20

424.20

55.27

KSE 100 Index

2525.00

2744.82

8.71

KSE All Shares Index

1571.16

1693.00

7.76

Source: KSE, MSCI, KASB