Updated January  03, 2004



The index experienced a 1.84% rise WoW and closed at 4473.93 on Friday's trading session. The largest portion of this gain was achieved on Monday following news of resolution of disputes between the government and MMA. The morale of the investors was also raised by the Indian delegation's confirmation that the Indian Prime Minister would attend the SAARC summit. The combination of these factors pushed the index up by 1.50% on the first trading day.



Tuesday, on the other hand, proved to be the only day in the week where the index closed lower than the previous day's closing. Volumes remained low on both Tuesday and Wednesday, the last two trading sessions of the year 2003. This was in line with expectations since volumes tend to taper off during the last few trading sessions of the calendar year. Thursday and Friday's sessions registered very minor gains. While the closing values of the index showed little movement, intra-day trading on both days remained volatile. This resulted in reasonable price rises, followed by a reversal of these gains by the end of the day. This pattern of trading is reflective of the fact that there is little news in market to drive stock prices in a particular direction.


The key driver of investment sentiment during the next week is likely to be the outcome of the ongoing SAARC summit in Islamabad. The cordial relationship that has been developing between Pakistan and India over the past few weeks is expected to reach new heights with the arrival of the Indian Prime Minister. Given the extra effort being made by both sides to improve relations, it is unlikely that any contentious issue will be raised during the meeting. Additionally, the speed with which the privatization process of HBL has been finalized is likely to revitalize the interest of investors in the privatization of PSO. This, in turn, is likely to lead to a boost in general market sentiment.


The State Bank released its 1QFY04 report wherein it predicted that GDP growth would beat the targeted 5.3% for FY04 on the back of better than targeted industrial and export performance. Whilst the agricultural sector is expected to attain its target, imports are forecast to grow at a higher than targeted rate. At the same time, inflation as measured by the CPI has risen marginally on the back of consumer demand growth. For the future we see growth continuing strongly however, the pressure on the rupee from the reduced current account surplus and increased capital account deficit and inflationary pressures in the economy may put downward and upward pressures on the rupee and interest rates respectively.


The real sector of the economy saw strong growth during the quarter, and looks to be on target to meet and in some cases exceed the targets set for FY04.

Agriculture sector: The agricultural sector should meet its target of 4.2% for FY04. The sector was boosted by a strong rice harvest on the back of improved water availability. However, the early rains damaged the cotton crop and so it looks likely that the year's cotton target will not be met.

Industrial sector: Industrial output on the other hand is expected to grow by 7.2% versus a target of 7.1% for FY04. This target beating performance is based on the 8.9% growth in the LSM sector versus an FY04 target of 8.8%. The sector grew by 10.1% (2003: 4.3%) during the quarter on the back of strong growth in Large Scale Manufacturing (11.7%) and electricity generation (6.5%). This growth was driven by strong demand for consumer durables on the back of low interest rates, increased credit availability and increased consumer awareness.


Inflation growth remained on a downward trend that began in February 2003 during the quarter relative to the same period year before. This deceleration was more pronounced in the case of food items leading to a 2.6% annualized CPI inflation rate by the end of September 03, which is lower than the 3.6% recorded at the end of September 02. Whilst the rate of inflation had previously bottomed out at 1.4% in July, it has spiked during October 03 on the back of increased energy and food prices on account of continued problems in the Middle East and the Ramazan effect respectively.


Net private sector credit saw strong growth during the quarter, +PkR23.1bn versus -PkR26.8bn last year, on the back of the low interest rates, increased emphasis placed on consumer and agriculture sector financing by commercial banks and increased consumer awareness regarding the availability of financing options. Credit off-take was further boosted by the high financing requirements of the textile sector in view of the cotton crop shortage. Demand for money was further affected by the first rise in net government budgetary borrowing in eight quarters.


Fiscal discipline was visible during the quarter as the consolidated budget deficit narrowed slightly from PkR41.0bn to PkR40.9bn (0.9% of GDP) when compared to the same period last year. This marginal fall in the deficit was due to a 7.9% YoY rise in revenue collections to PkR12.1bn on the back of a 20.7% YoY rise in non-tax revenues, a 3.6% YoY rise in tax revenues and higher payments from the USA for logistical support. Expenses on the other hand rose by PkR12bn, (6.2% YoY) however, current spending dropped by PkR2.2bn, 1.4% YoY, public enterprise expenditures dropped by 1444.2% YoY and interest payments declined by 10.1%YoY. Defence spending however shot up by PkR13.1bn, 40.3% YoY, due to operations on the Afghan border, but this is to be paid for by the US logistics support receipts.


The overall balance remained at $770mn during the quarter on the back of an 18.5% YoY decline in the current account surplus and a 131.8% YoY rise in the capital account deficit. The decline in the current account surplus was caused by a 14% YoY fall in workers' remittances, the inclusion of travel related payments (increase of 1114.3% YoY) through exchange companies and a 23.1% YoY fall in the trade balance during the quarter. The rise in the capital account deficit during the quarter on the other hand was caused by a fall in foreign direct investment by 31.2% YoY, mainly due to a fall in investment in the chemical sector due to inflows related to ICI Pakistan's expansion last year, a 59% fall in non-food aid and increased settlement of foreign currency trade related loans against FE-25 deposits.








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