back of strong institutional activity created the
perfect recipe for a strong start. Tuesday saw profit taking early on
that was offset by the announcement of a change in Standard &
Poor's outlook for Pakistan, from stable to positive, which helped the
market breach 4300. However, Wednesday brought with it a fall in the
index on the back of high badla rates. The fall though was offset
later on in the day as investors began to re-enter the market at the
lower levels. Thursday brought the lowest volumes of the week, which
aided in the fall of the index after a positive opening. Once again,
the fall was offset later on in the day on the announcement of the
Indian Prime Minister's decision to attend the SAARC summit in
Islamabad in January.
High badla rates however, limited the index's
recovery. Friday brought relatively higher volumes however, the index
fell in face of the rumors of another delay in PSO's privatization and
continued high badla rates. It must also be noted here, that even
though volumes were strong, they exclude OGDCL's provisional trading
volume figures, which remained strong throughout the week.
OUTLOOK FOR THE FUTURE
Next week, volumes are expected to remain strong.
Furthermore, the excess cash received for OGDCL shares is also
expected to be returned during the week, which should boost both
volumes and the index as investors try to allocate these excess
balances. This positivity will be supported by the continuous warming
in Indo-Pak relations. However, the unresolved LFO issue and the MMA's
decision to begin nationwide agitation may offset this optimism.
The major developments this week were:
•Petroleum prices were increased by an average of
2.6% in the recently held meeting of the Oil Companies Advisory
Committee. Prices of Kerosene, High Speed Diesel and Motor Gasoline
were raised by 3.21%, 3.11% and 1.85% respectively.
•Given the huge differential between surcharges
on gas and petroleum products, the World Bank has proposed an increase
in gas surcharges to the Government of Pakistan. The government
collected PkR15bn and PkR45bn from gas and petroleum surcharges
•As per the Minister of Petroleum and Natural
Resources, oil and gas exploration attracted investments of close to
US$1bn during FY03, almost 40% higher than last year.
•The Managing Director of PSO in a recent
interview stated that work on the second white oil pipeline would
commence from next year.
•Commerce Minister Humayun Akhtar stated that
Pakistan and the EU are close to reaching a deal on the bed linen
•Pakistan and India signed an agreement on Monday
to resume flights between the two countries by Jan. 1, 2004.
•Formal notification was received with regards to
the financial charges payable by PSO to oil refineries. The Economic
Co-ordination Committee in its meeting held last month waived off
PkR8bn owed to the oil refineries. Financial charges of approximately
PkR9bn on the outstanding amount arose as a result of the energy
sector's circular debt problem as per PSO. The government and PSO had
earlier indicated that this issue would be resolved and that the
interest charges would be waived off, however, formal notification in
this regard was awaited by the bidders.
PIB JUMBO AUCTION RESULTS
The State Bank carried out the last auction of the
jumbo bond series, which helped it nearly achieve its original target
of collecting PkR50bn. The Bank accepted bids for PkR8bn worth of
10year bonds, PkR3.6bn worth of 5-year bonds and PkR2bn worth of
3-year bonds. The PkR16.45bn injection made by the State Bank earlier
in the week helped it achieve its auction target without significantly
altering the yields on the bonds. The yields for the 3 and 5-year
bonds were marginally reduced, while that on the 10-year bond was left
unchanged. Liquidity in the system is likely to remain tight during
the current month due to several reasons, including demand from the
banks to improve their balance sheets before reporting annual results.
Given that the State Bank intends to continue with the current
interest rate structure in the foreseeable future, it is likely to
inject more money into the system during the coming weeks.
The third auction of the Jumbo PIB issue carried
out by the State Bank helped it nearly achieve its original auction
target of PkR50bn. It accepted bids for PkR8bn worth of 10-year bonds,
PkR3.6bn worth of 5-year bonds and PkR2bn worth of 3-year bonds. Thus,
the total bids accepted in the series of auctions fell just around
PkR2bn short of the PkR50bn target. Moreover, Thursday's PkR16.45bn
injection in the market by the SBP helped it achieve its auction
target without significantly altering the yields on the bonds.
The cut-off yield on the 10-year PIB was left at
the same level as the last auction, i.e. 6.23%. However, yields on the
3 and 5-year bonds declined marginally from 4.09% to 3.95% and from
5.12% to 5.00% respectively.
By allowing yields on 3 and 5-year bonds to fall,
while simultaneously maintaining it on 10-year bond, the SBP made it
more attractive to hold the longer term bond and further rationalized
interest rates structure in the process. Table 1 details the sizes of
the bids accepted as well the cut-off yields for all three bonds in
during the auction series.
The State Bank has reiterated several times that it
does not plan to significantly alter the current interest rate
structure in the foreseeable future. This was further qualified by its
action of injecting adequate liquidity into the market before carrying
out the third auction. As a result, it would be safe to assume that
the next monetary policy statement, which is expected to be released
next month, will be very similar to the first one. Keeping this in
view, the SBP is likely to make further significant injections in the
economy during this month since the follow-on effects of withdrawals
from banks for eid holidays/shopping, combined with payment of
dividend by PTCL and blockage of money in the OGDCL IPO process, are
likely to keep liquidity under pressure. Moreover, banks report their
annual financial position in the month of December and will look to
streamline their balance sheets.
IMPLICATIONS FOR THE MARKET
Shortage in available liquidity is likely to keep
overnight lending rates on the higher side during the month. We expect
this scenario to play even with injections from the SBP. Since changes
in badla rates are closely linked to variations in the overnight rate,
the former is likely to remain on the higher side as well. Moreover,
in order to satisfy their liquidity needs, banks are likely to curtail
their participation in the stock market during the month.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
No. of Trading Sessions
KSE 100 Index
KSE ALL Share Index