During the last two months, the KSE-100 index has
gained more than 600 points and continued its unabated upward
movement. At the current level, many investors little perturbed. They
fear that the index may take nose-dive any moment, even on the
slightest pretext. However, many analysts strongly believe that the
market is now poised to test its new level at 4,000 points. Analysts
also suggest that investors should also keep an eye on the regional
markets, though these have hardly any relevance with the KSE-100 index
While analysts have been saying for a considerably
long time that the upward KSE-100 movement is a bonanza, purely led by
the local investors. Excessive liquidity and dearth of other
investment options have kept investors' interest in equities market
vibrant. With further improvement in economic fundamentals and
declining trend in interest rates, corporate earnings have been
improving. Therefore, dividend yields remain attractive, despite
increase in quoted prices of leading scrips.
While most of the analysts keep on referring to
'surplus liquidity syndrome', others are often unable to understand
the impact of over-flowing liquidity on equities market. The quantum
of excessive liquidity can be gauged from the recent T-Bills auction.
As against the total bids of Rs 150 billion, the central bank picked
up only Rs 75 billion or half of the amount. Out of this Rs 67.748
billion against 12-months bills and Rs 7.969 against 3-months bills.
The cut off point was 2.17%/annum for 12-months bills and 1.65%/annum
for 3-months bills. When banks are sitting on tonnes of money, a
larger part is expected to flow to equities markets — mainly for Badla
Aqib Elahi Mehboob, Head of Research, AKD
Securities, often come up with strange numbers. When the KSE-100 index
was hovering below 3,000 level, he came up with 3,362 benchmark. While
others are forecasting that the index may cross 4,000 level his
benchmark is again very odd, 3,981. However, in one of his latest
reports he said, "In the medium term we continue to remain concerned.
Our P2M indicator now stands at 38%, approaching the peak attained
during the year 2000 speculative rally, and some of the second-tier
stocks — recently seen at huge run up — are clearly over-valued."
It is necessary to reiterate the point that the
hike in prices of quality scrips is the result of demand and supply
gap. The acute shortage of quality scrips has resulted in hike of
second and third tier scrips also. A serious cause of concern is the
growing share of second and third tier scrips in Badla trade. Some
analysts say that some market manipulators are responsible for
large-scale trading in these scrips. Many novice (people having money
but hardly have knowledge about the market) are being intimidated to
follow the Badla route.
According to Iffat Zehra of Capital One Equities,
"The technological structure has enabled the efficient flow of capital
and similar vulnerabilities or contagion effect of weakness in one
economy spreading to other. While each of the regional economies
differ in many important aspects, the sources of their growth in
recent years and the problems that have recently emerged are relevant
to a greater or lesser extent to nearly all of them."
The regional markets took a turn in second quarter
of calendar year 2003, following a dismal performance in first
quarter. Bullish signs and good volumes in many markets has given rise
to the hope that the region has turned corner and is now on the climb.
Majority of the regional indices grew in double digits, except the
Indian market. The outlook of the region remains bright. Asia is
forecasted as the fastest growing region of the world. Investors
attention in the regional market is expected to remain upturned amid
doubts about the economic recovery in the US. Asian markets are
expected to outperform all other markets. A positive outlook for all
the markets bodes an encouraging outlook for Pakistan equities market.
The overflowing liquidity and investors' keen
interest in equities market demand that the GoP must implement its
divestment plan, announced along with the federal budget,
expeditiously. It will increase the market float of quality scrips and
absorb part of the prevailing surplus liquidity.