THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated November  27, 2003

 

MARKET THIS WEEK

During this shortened week, the Index grew nearly 2%. As usual, Monday brought a strong start to the week, on the back of news of fruitful discussions between the MMA and the government over LFO and rumors of a revision in the new COT regulations. Sentiment was further supported by institutional buying.

 

 

 

Tuesday however, was a volatile day, characterized by very low volumes as investors adopted a wait and see attitude towards the government-MMA negotiations and with regards to news of the debriefing of Pakistan's top nuclear scientist. However, there was some buying in view of approaching results announcements and PSO bidding date rumors. Near the end of the day, excitement built up as rumors of an MMA-government agreement spread, which was offset by offloading in view of the high badla rates. Wednesday was boosted by the MMA-government agreement and OGDCL's results announcement due on Friday. The banking and cement sectors also saw a lot of interest in view of upcoming results. However, these were offset as near the end of the day, rumors spread that the government was pressurizing Hubco to revise its tariffs. Friday saw the biggest decline of the week on the back of the 2nd assassination attempt on President Musharraf and OGDCL's results which were not as good as expected.

OUTLOOK FOR THE FUTURE

The lack of positive newsflow is hurting the market sentiment and we expect this trend to continue in the near term. Though the HBL bidding may add some spice to the market sentiment, we do not expect HBL to see its new owners very soon. The most likely scenario will be a lengthy post bid negotiation between the government and the three short listed bidders. This lengthy process will eventually delay the PSO privatization and thus will bring negative sentiment into the market. Moreover, the effects of the recent assassination attempt on the President are likely to carry on into the next week. In the absence of any further positive news on the political front, it is likely that investor sentiment will remain negative for a while before we see a recovery.

FERTILIZER SECTOR REVIEW

Though the latest data released by the NFDC highlights a decline in fertilizer off-take, the overall seasonal trend appears to be healthy with double digit growth in all the major products like urea & DAP. The stable price outlook and government measures to lower taxes to boost production are likely to impact the fertilizer manufacturers positively. With most of the fertilizer stocks outperforming the market, it appears that investors are already discounting the positive fundamentals of the sector. We maintain our Buy recommendation on FFC whereas we suggest Neutral weights for Engro, FFC Bin Qasim and Dawood.

November was not a very exciting month for the fertilizer sector in terms of overall fertilizer consumption in the country. This was stated in the latest fertilizer sector update released by National Fertilizer Development Center under its mid December Fertilizer Sector review. Here are the key highlights:

FERTILISER OFFTAKE

On an overall basis, total nutrient off take during November 2003 was about 459k tonnes, almost 4.3% lower YoY. Nitrogen off take was up by 1.0% YoY, and phosphate off take decreased by 12.6% YoY during November 2002. Potash off take witnessed an increase of 51% YoY, though its consumption is negligible in the overall fertilizer sector perspective. Urea off take was 466k tonnes, up 6.4% YoY, while DAP off take was 302k tonnes, down 15.8% YoY. According to NFDC's explanation, the declining trend in consumption figures is misleading as overall fertilizer off take has increased significantly in the first two months of Rabi 2003 whereas urea consumption was up 16.5% and DAP consumption was up 12.8% YoY. The reason behind declining growth in the November is attached with higher consumption during the initial months. Interestingly the expected decline in consumption also influenced the fertilizer manufacturers to lower their production during November. NFDC data indicates a drop of about 10k tonnes in local fertilizer consumption during November to 513k tonnes.

 

 

STABLE PRICES

Urea prices remained stable with marginal increase of below 1% in retail prices for various manufacturers. However, other products witnessed increases within a range of 1.9 to 23.3%. DAP recorded a sharp rise in price (about 6.4%) due to (I) increase in landed cost of imported DAP and (II) speculations in the market on the back of extremely volatile international product prices.

OUTLOOK FOR RABI 2003-04

The fertilizer center appears to be quite comfortable with the fertilizer sector outlook for rest of the Rabi season. It has shown its comfort with the overall urea availability situation during Rabi, though the center is predicting relatively tight demand & supply situation for other products. In particular the DAP supply is likely to remain tight. High prices in international market and increasing freight charges are restricting importers' interest in this product. The level of local DAP production also has its strings attached with the gas supply situation in winter. Another interesting development which the center has termed as a potentially key trigger for DAP consumption in the near future, is the issuance of SRO by CBR, fixing deem price of DAP at US $ 160/t for GST. This step is likely to provide a relief of PkR35-45 per bag to farmers and will eventually influence them to use more DAP to improve their productivity.

FERTILIZER STOCKS PRICE PERFORMANCE

Three of the four fertilizer stocks gave relatively better performances during the period under review. However, the salient feature was the under-performance by FFC Bin Qasim and an upward adjustment in FFC's share prices in comparison to FFC Bin Qasim. The cooling down of merger related hype was the chief reason behind this. An exceptional out-performance from Dawood has its strings attached with the group's interests in HBL privatization. We maintain our Neutral stances for the three manufacturers Engro, FFC Bin Qasim and Dawood. FFC is the only stock that we recommend in the sector.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

15.97

16.35

2.38%

Avg. Dly T/O (mn. shares)

244.33

251.30

2.85%

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

208.92

271.94

30.16%

No. of Trading Sessions

5

4

 

KSE 100 Index

4310.97

4393.04

1.90%

KSE ALL Share Index

2729.82

2783.07

1.95%

 

 

Source: KSE, MSCI, KASB