Dec 08 - 14, 2003



SARWAT FATIMA has recently joined Elixir Securities Pakistan, a corporate member of Karachi Stock Exchange. Prior to joining Elixir she was working for KASB Securities as an Investment Analyst, responsible for preparing in-depth company/industry analysis for oil and gas, and textile, cement and FMCG sectors. Earlier she worked for Aqueel Karim Dhedhi Securities (AKD) where she was responsible for providing research coverage for Pakistan to Merrill Lynch besides preparing in-depth coverage of textile, PSF, cement and fertilizer sectors. Prior to joining AKD she worked for KASB, where she started her career as Intern in August 1999. Sarwat has done her B.Sc. (Hons) and M.Sc. Mathematics from University of Karachi. At present she is also busy in study for Chartered Financial Analyst (CFA).

PAGE: How do you compare Pakistan's equities market with other regional markets?

SARWAT FATIMA: Pakistan has lost its top performing market status to other emerging markets. The main reason was the recent correction that took place during the months of September and October when the index nearly lost 25% after registering over 100% gains in little over 6 months. The interesting factor to note here is that Pakistani market has become more attractive in terms of valuations after this correction. This factor has also addressed most of the investors concerns where they were pushing downgrades on Pakistani market after a consistent bull run of over last 2 years.

PAGE: Will the KSE-100 index cross 5000 level?

SARWAT: Well, I think so, but this can only be achieved in the long run. Given the fact that our market is momentum driven and generally it draws its momentum from the news flow, the recent slowdown in the positive news flow is likely to affect the market direction in the short term. The recent developments regarding privatization of PSO and the newly-activated privatization of PTCL can further push the market. However, the market also needs some international inflows as well to move ahead in terms of numbers. I'm bullish in the long run but I foresee a consolidation phase in the short to medium-term. The 5000 level of the KSE-100 index is achievable but we should target this in 2004.

PAGE: What were the factors contributing towards the bull run in the recent past?



SARWAT: Two Ds were instrumental in bringing a bull run in the market. De-dollarization is the first factor where the country has seen unprecedented dollar inflows through increased workers remittances and reverse capital flight from Pakistanis. This factor pushed the market to "less stocks-more money". De-regulation is the second factor that has made significant contributions towards this bull run. This phenomenon has acted both ways. On one hand, it has made the sectors more lucrative thus attracting investment flows into stocks belonging to some of the sectors and, on the other hand, the growing demand has pushed the companies to enhance their capacities to improve their profitability. The GoP's efforts for strengthening the institutions and subsequently a very pro-active role of the regulators, Securities and Exchange Commission of Pakistan (SECP), has helped in sustaining the bull run.

PAGE: How do the corporate earnings affect market performance?

SARWAT: The corporate sector has performed very well in the recent past. The efficiency drive among most of the local companies is another reason that actually made the old corporate stories decent enough to attract investors' attention to the local companies. Moreover, the growth in economy has enlarged the over-all pie size that led to higher sales volume for most of the companies. In addition to this, de-dollarization of the economy has led to lower interest rates. The reduction in interest rates has resulted in strong recovery of those sectors/companies that were at the brink of default owing to higher financial charges. The reprofiling of debts of these institutions and enhanced consumer financing are contributing to increased aggregate demand. On the operating cost side, a stable currency has also played an important role in improving operating margins for the companies.

PAGE: What are the possible reasons for lack of interest of foreign investors in the local equities market?

SARWAT: There are some very obvious reasons behind their absence. Initially, the foreign investors were not very comfortable with the market recovery owing to larger political risk. Later on their nervousness about the market increased on account of too much recovery in too little time. Since the market has been driven by attractive dividend yield. While the yield attracted the local retail as well as institutional investors, an around 12% dividend yield in rupee terms was not attractive for foreign investors due to their perceived risk of investing in Pakistan. Moreover, lack of marketing efforts from the Pakistani brokerage community can also be termed as another reason responsible for poor response from the foreign investors. In my view, the foreign investors may enter the local market in the medium to long-term. The tremendous response to public offer of 2.5% shares of Oil and Gas Development Company (OGDC) has made Pakistan market very visible within small cap emerging markets. The issuance of Eurobond by three international houses will improve Pakistani market profile and will attract the investors. On top of every thing the further improvement of Pakistan's credit rating will further boost the investors' confidence.