THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated July 12, 2003

 

MARKET THIS WEEK

The bull rally continued for another week with the index posting a gain of another 168 points during the last five days. The magnitude of the positive momentum is significant. On a WoW basis, the market was up 4.8% to end the week at 3645.89. Average daily trading volumes during the week also increased by 24% to 437mn shares. The biggest feature of the week was the shifting of the some the speculative interest from the second-tier stocks into first tiers.

 

 

 

The exceptional performance of PTCL, FFC, POL and Engro is a clear indicator of this shifting phenomenon. Three developments that fueled the market bull rally were: (i) SBP's effort to maintain the current monetary situation intact whereby the bank has mopped up around PkR75bn from the market while the market remained liquid after this action; (ii) The withdrawal of the no trust move against the Deputy Speaker of the National Assembly was another factor which provided comfort to the investors; and (iii) Continuous increase in the capacity utilizations of the cement companies to 75% has upgraded investors hopes from this commodity sector.

OUTLOOK FOR THE FOLLOWING WEEK

The shifting of interest from the 2nd tiers to 1st tires has disturbed our earlier assumption where we were expecting the market to take a correction after an exceptional performance of the 2nd tiers. However, strong liquidity side pressures and market's total "ignorance" to the ongoing political crisis has compelled the investors to stay tuned to the equities. At the same time, continuous warning signals from most of the brokerage houses regarding the price run ups in the 2nd tiers has also influenced the investors' opinion and has forced them to look for the stars again. Since most of the tier companies are fundamentally undervalued, we expect the bull rally to stretch a bit further. Having said this, the risk attached with equity investments is rising to a significant level. The price volatility is likely to see its extreme values in the days to come. Our advice to the long-term investors is that they should keep increasing their cash ratios at the moment. An exit from the 2nd tiers is recommended whereas the strategy for the 1st tiers needs some due diligence. The investors need to go back to the basic working of their desired rate of returns where they should be incorporating a higher risk premium for equity investments at this point in time, in line with the rising price volatility of the market.

FUNDAMENTAL CHANGE

THE MAJOR DEVELOPMENTS THIS WEEK WERE:

The trade data for FY03 was released over the last weekend. The 20.76% increase in exports to US$11.03bn is by far the most impressive achievement of the country during the year. Thanks to a relatively lower increase in imports (17.85%) to US$12.18bn, the trade deficit has slightly declined to US$1.155bn.

The Privatization Commission (PC) hinted on the announcement of the bidding date for PSO. The Minister for Privatization and Investment, Dr. Hafeez Shaikh stated in a press briefing that the bidding date would be announced in the next 10 days.

National Credit Consultative Commission (NCCC) approved an 11% expansion in monetary assets for FY04. Out of the total PkR230bn expansion, the net foreign assets are likely to see an expansion of PkR130bn. The government is aiming to get PkR15bn from next years expansion for fiscal support.

The State Bank of Pakistan issued a monetary policy statement for next six months. The SBP maintained its earlier stance that it will continue its existing monetary policy initiatives during the next six months.

National Investment Trust Limited (NIT) issued a statement stating that it will be reinvesting its sale proceeds of PSO back into the stock market

The commencement of commercial operations of Bosicor Refinery Ltd. (BRL) appears to be just around the corner with the company signing a PkR200mn working capital financing agreement with the local banks.

The Supreme Court has suspended the decision of the Election Tribunal regarding the suspension of one of the MNA from MMA.

 

 

Following the footprints of Karachi Stock Exchange, the Lahore Stock Exchange (LSE) is also considering to offer its membership to the financial institutions and banks. Reportedly, the LSE will soon be announcing its offer.

With the pending 50% rights issue, Pakistan Industrial Credit and Investment Corporation (PICIC), which has the management rights for ICP-SEMF, submitted a financial plan for ICP-SEMF up to FY06. In line with our expectations, the rights issue has its strings attached to the impending privatization of PSO.

The first Independent Power Producer to convert to gas, Rousch Power (Pakistan) Ltd (RPPL) is to receive 85mmcfd gas from SNGPL. The conversion to gas is likely to reduce the cost of fuel, and consequently the tariff. However, concern remains over the availability of gas during the winter season.

The central bank has been able to mop around PkR75bn against its target amount of PkR70bn from this week's T-bill auction. The enthusiasm of the participating banks can be gauged from the fact that SBP received PkR150bn worth of bids in this auction, though a part of this huge amount was also speculative in nature.

The urea manufacturers raised urea price by PkR10 per bag to PkR425-430 per bag.

THIS WEEK'S TOP STORIES

PRIVATIZATION THE NEW HOPES!

The privatization theme at the KSE is likely to see a revival today after the minister's detailed interview with the media on the privatization process. Reportedly, the minister has touched upon almost all the currently active transactions. For most of the transactions, the Privatization Commission seems to be restarting the entire privatization process for all those transactions where it has yet to see any concrete results. While PSO is likely to be the largest beneficiary Way, PTCL is also likely to attract some interest from long-term investors.

POL CONSUMPTION  MODEST DECLINE

A modest decline in POL consumption should not be view negatively. The major factor responsible for this has been the decline in Furnace Oil consumption, which is primarily due to the increased water availability this year. We are of the opinion that there has been some increase in gas supply to electric utilities, particularly in case of KESC. However, as long as IPPs remain on FO, we do not expect any major decline in FO consumption going forward. Within the oil sector, PSO remains our top pick, which is trading at a 21% discount to our DCF based target price of PkR2851 share.

FERTILIZER POLICY A CASE FOR REVISIT

We do not expect any significant change in the fertilizer policy of 2001 even if government opts for a review of this policy. Given the existing macro and sector specific conditions, government has very little to offer. The sector players need to be involve to buy growth in future. Engro was the first one to realize this and the Oman project is one such effort, which will change the existing profile of the company. Fauji will have to focus on de-bottlenecking within its own plants, which the management is already considering.

CEMENT PRODUCTION ANOTHER UPWARD REVISION

Revision of cap on production level of the cement industry is now becoming a day-to-day matter for the cartel. This is the fourth time during this month that the cartel has revised capacity utilization rate for the industry and now it is again 75%. Reasons given by All Pakistan Cement Manufacturers Association (APCMA) for this capacity hike are: (i) temporary closure of Dandot Cement; (ii) certain measures taken by the cartel to keep a check on cement units to stay within the prescribed capacity limits, (iii) increase in cement demand owing to monsoon season (high repairs), and (iv) APCMA is not accounting recent upgradation and de-bottlenecking in the actual capacities of the cement units, thus keeping the capacity utilization rate on a higher side, in our opinion.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

13.05

14.02

7.46%

Avg. Dly T/O (mn. shares)

466.88

437.07

-6.38%

Avg. Dly T/O (US$ mn.)

310.88

251.69

-19.04%

No. of Trading Sessions

5

5

 

KSE 100 Index

3400.08

3645.89

7.23%

KSE ALL Share Index

2166.5

2331.51

7.62%

 

 

Source: KSE, MSCI, KASB