THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated June 28, 2003

 

MARKET THIS WEEK

The KSE-100 Index continued its upward journey this week as well. The Index closed at 3400 on Friday, up by 2% over the last week's close. Average daily volume also witnessed a significant increase of 21.75% to 467mn shares, during the week. The price volatility of the Index was at its extremes with KSE-100 making a average move of 1.12% every day on intra-day basis.

 

 

 

The last week's bull trend was primarily cemented by the cement sector stocks, which moved up sharply on the back of the reports regarding higher capacity utilization rate fixed by the cartel. Moreover, the announcement of a US$3bn US assistance package also helped the market in sustaining its rally. Main contribution was witnessed from retail investors who behaved like there will be no better day than today to buy these stocks. The unprecedented Bull Run in the second and third tier stocks reminds us the last few days of 1994 bull rally.

OUTLOOK FOR THE FOLLOWING WEEK

In the absence of logical behavior behind current rally, obviously it is hard to predict an end to this euphoria. Whereas, in the anticipation of high profitability in the cement sector going forward, investors might find it reasonable to get into these stocks. However, in our opinion, the retailers are as usual, over-looking the rationality behind these expectations. Moreover, different cock & bull stories in the textile sector are good to act upon for intra-day gains, but we find very little tinge of reality in these, as well. Our experience with the local market indicates that the current state of the market can be assimilated with the last legs of 1994 and 2000 rallies when investors' preferences for the stocks lie in the best possible scenarios in the longest possible horizons. Unfortunately, we expect a similar end to this rally as well. The current badla situation is very interesting to watch at, at the moment. Where in our opinion, investors should not sit with comfort at these levels, as badla rates are close to hit their upper cap.

FUNDAMENTAL CHANGES

The major developments this week were:

•The SBP's 3QFY03 report was released. The bank has come up with a 4.6% GDP growth estimates for the current year as against 5.1% given by the government. The logic given by the bank for this anomaly was that the government has made some downward adjustments in the last year's GDP number, which has inflated the current year's GDP number to 5.1%.

•SBP slashed 6 monthly cut off yield to 1.66%, 18bps lower than the last auction. The reduction in the rate was very much in line with the market anticipations.

•DG Khan Cement Company repaid US$65mn IFC loan. Though this factor has largely been discounted by the market, the news had a positive impact over the stock price.

•All Pakistan Cement Manufacturers Association increased cement quotas for the current month to 79%. This was done to bridge a temporary gap in the cement supplies that was created by the huge inventory pile-ups in April, and subsequent lower operating capacities in the following months by the cement companies. This factor has also contributed positively towards the current bull rally in the cement.

•The US government announced a US$3bn aid package for Pakistan. This amount included an allocation for the debt write-off, sale of defense equipments and some allocations for the social spending.

•National Fertilizer Development Corporation's data release for the fertilizer consumption for the month of May was another factor, which helped the trapped Engro's stock in a narrow trading range to break this range.

•The Privatization Minister's visit to the KSE was a non-event, as the minister could not come up with any new piece of information for the market.

 

 

SBP 3QFY03 REPORT: KASB COMMENTS

Though with some delay, the SBP released its 3QFY03 report on the economy. While the report is continuation of SBP's positive stance on the economy, it has also highlighted the actual reason behind the 60bps positive surprise in the GDP growth number claimed by the Ministry of Finance (MoF). The central bank has appreciated the FY04 budget and is of the view that the incentives provided by this budget will help the country in its transition into the growth phase from the current state of stabilization. The SBP report is pretty much in line with the economic survey that was released by the Ministry of Finance early this month.

SBP RELEASED ITS 3QFY03 REPORT

With a delay of almost a month, the central bank has come up with its 3QFY03 report.Though this report carried less significance owing to the fact that government has already released the Economic Survey for the current FY, SBP's endorsement to the government numbers was required to get a more credible picture of the economy. The report came up with a controversial statement regarding the overstatement of the GDP growth by the ministry and has also highlighted the fact that the current year's higher growth has its strings attached with the downward adjustments in the GDP growths for the earlier years.

Since the ministry never disclosed the downward adjustments in the prior years economic data, we are of the opinion that SBP's reports of a lower GDP number will affect the credibility of the ministry to some extent. However, our readers must not get confused with the two numbers as if they go by MoF numbers, FY04 growth will be lower, and if they opt for SBP's data, the next year growth will be higher than the government target of 5.3%. It all depends upon the base that anyone would use to arrive the current year or the next year number. The bottom line over here is that the growth pace of the economy is picking up in the future. As far as other macro economic numbers are concerned, SBP's data is pretty in line with the numbers disclosed by the ministry in the economic survey.

 

 

OUTLOOK FOR FY04

The central bank is also appreciative of the recently announced budget. It believes that the budget has adequate incentives to support the government's aim to achieve higher GDP growth. In particular the central bank has mentioned a higher allocation for the PSDP as an engine to achieve higher growth. The bank has also emphasized over the political will to implement the next generation reforms.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

12.72

13.05

2.59

Total Turnover (mn shares)

1917.39

2334.42

2.81

Value Traded (US$ mn.)

1280.37

1554.38

21.40

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

383.48

466.88

21.75

Avg. Dly T/O (US$ mn)

256.07

310.88

21.40

KSE 100 Index

3307.09

3400.08

2.81

KSE All Shares Index

2106.50

2166.50

2.84

 

 

Source: KSE, MSCI, KASB