is currently working as an investment analyst in KASB Securities (Pvt)
Ltd one of the oldest brokerage house in Pakistan, and the only house to
have collaboration with a foreign-based research firm, Merill Lynch. He
graduated from the Institute of Business Administration of Karachi after
completing his MBA in December 1999. He has been actively covering the
fuel and energy sector for the past two years.
Index has created new highs lately, what will be the future direction?
reason behind the strong performance of the KSE-100 has been the high
liquidity. In the wake of dropping interest rates, and surplus
liquidity, investors have found themselves short of investment
opportunities. In such a scenario, the KSE is the only place, which
still offers prospects of good return for investors. With the bank
deposits offering 3-4% return, and yield on government papers ranging
between 1-5%, both institutional and individual investors have turned
towards the KSE where dividend yields even after the bull run is ranging
between 8-12%. I think that as long as the low interest rates and
surplus liquidity environment persists, the KSE-100 is likely to
maintain its rising trend.
Prices of volume leaders have gone up due to the gap in demand and
supply of quality scrips, how can this be bridged?
have been certain instance where due to the low free float in certain
scrips, prices have moved up very sharply. This is a typical demand and
supply situation due to low float (supply) of scrips and high demand
from investors, investors are willing to purchase more and more of the
quality scrips. I think this issue has to be looked from the perspective
of the breadth and depth of the market. With the increased participation
of investors in the stock markets, stocks, which were hardly able to
attract investor attention, are now actively traded in the stock market.
This, to some extent has increased the breadth of the market. However,
the Karachi Stock Exchange has seen only a handful of listings in the
past couple of years. Addition of quality scrips to the tradable
universe is a very important factor for increasing the breadth of the
stock market. As far as depth of the stock market is concerned, we still
see that in certain companies, the sponsors hold majority of the shares,
through which they maintain their right of management control of the
company. While the breadth of the stock market can be resolved by adding
new scrips, the depth of the stock market is something where not much
can be done.
Lately investors have been talking about dividend yield, but do not give
much attention to cash flow statement. Does cash flow has any relevance?
are paid out of cash available to the company after meeting its
obligations. Thus, cash flow statement is the basic tool to determine
the cash available to the company for dividend payout. Dividend
expectations are built open the cash flow statement and hence are very
important for any investing decision-making using dividend yield as a
Can the prospects of privatization of KESC be improved by dividing it
into five entitities?
option can definitely be looked in to. However, I believe that the
government would prefer to privatize KESC as a single entity. The likely
issue is that every company has certain weak areas and certain strong
areas. Supposing that KESC is split in to distribution and generation,
there might be a segment, which is very profitable, while the other
might be loss-making. In such a situation, while the government would be
able to find a lot of interest in the profit-making segment, it might
not find a buyer for the loss-making unit. So, the government might be
left to either accept a low price for the loss-making unit or eventually
end up continuing to manage the loss-making units itself. So the
government would prefer to privatize KESC as a single entity. A similar
strategy has been adopted in the case of WAPDA, which has been split up
in to three generation and 8 distribution companies. How far the
government is successful in privatizing the corporate entities of WAPDA
remains to be seen.
How KESC's shortfall of electricity can be met?
has been no substantial addition in the public power sector enterprises
for quite some time now. KESC, due to lack of resources, has been unable
to invest in to increasing its generation capacity. However, it is being
supplied electricity from two Independent Power Producers, namely Tapal
and Gul Ahmed Energy, are currently dedicated to supply power to KESC.
The only other IPP in the vicinity of Karachi is Hub Power Company,
which has a contract to supply power to WADPA only. There have been
indications of linking KESC with Hub Power to meet the shortfall in
power generation at KESC. But this project is still on papers.
Currently, any shortfall in KESC's system is met from WAPDA, if there is
excess capacity available.