Updated January 17, 2004



The index continued its upward trajectory during the current week and settled at a record high. Advancing 2.49% WoW, the index ended at 4684.04 on Friday's session as opposed to 4570.14 last week. This closing was well above the previous all-time high of 4604. Inline with our expectations, political news acted as the most significant determinant of the market's direction during the week.





Implementation of confidence building measures by India and Pakistan, such as the decision by both sides to raise the sizes of their diplomatic missions, combined with continued verbal support from foreign countries, particularly the United States, helped boost the confidence of investors. The bullish trend lasted throughout the week and peaked on Friday, with the index gaining 1.07% on the last trading day of the week. An interesting feature of this week's rally was the fact that it was driven primarily by stocks such as Nestle, which are generally left on the sidelines and experience relatively small trading volumes.


Similar to the trends observed in the past two weeks, political developments are likely to wield the biggest influence on the direction of the market during the coming week. Next week will also witness the IPO of the closed-ended Pakistan Capital Market Fund. While new offerings generally have a positive impact on the market, given the size and nature of this fund, it is unlikely to have significant impact. One possible "wildcard" which could lead to higher volatility in the market is the confusion prevailing in the delivery of OGDC shares. Moreover, the issuance of monetary policy statement by the central bank can also make a significant impact over the market direction.


The major developments this week were:

•Numbers released by the SBP revealed that banks increased average lending rates from 5.32 per cent at end-October to 5.49 per cent at end-November.

•The Cabinet formally approved the Telecom deregulation policy.

•Increased stock of Furnace Oil with local refineries prompted the government to take measures to increase consumption of Furnace Oil in the country.

•With a view to lower the traffic on Karachi Port, the government has decided to direct imports of crude oil as well as High Speed Diesel to Bin Qasim Port, while Fauji Oil Terminal Company will be handling these cargoes.

•The Privatization Minister announced that the date for the IPO of SSGC will be scheduled after Eid-ul-Azha. A road show relating to the IPO was held in Karachi on Friday. The government has also indicated that it plans to divest its minority holding in United Bank Limited within the next two months.

•PTCL announced the allocation of PkR4bn for a voluntary separation scheme (VSS). The company is planning to start the scheme from June 04.

•The Indian government indicated that talks with Pakistan would begin after the formation of the new government. General elections are expected to be held in India within the next two months.

•Pakistan Petroleum Limited applied to the Oil and Gas Regulatory Authority to sell gas directly to WAPDA's Guddu Power Plant.

•Reports indicated that the Worldcall Broadband issue was oversubscribed six times and the company managed to raise around PkR1.75bn against an issue size of PkR285mn (excluding employees allocation).

•The SBP revealed that private sector credit offtake shot up to PkR156.8bn against a full year target of PkR85bn.

•The government finalized plans to expand the federal cabinet.

•A US trade official reiterated his country's commitment to end textile quotas.

•Increase of gas in KESC's consumption mix coupled with a decline in the prices of Furnace Oil prompted the National Electric Power Regulatory Authority to reduce the tariff of Karachi Electric Supply Corporation (KESC) by an average of 8.74 paisa per unit.

•Net investment in NSS experienced a 94% YoY fall from PkR32.8bn in July-Nov 2002 to PkR2bn in July-Nov 2003.

•The SECP has capped the projections of returns by the insurance companies to 8%, which they generally offer to their customers while selling unit linked policies.

•A press report published during the week indicated that investments in NSS by non-resident Pakistanis would be subjected to a 10% withholding tax. The CDNS however later clarified that the tax exemption for non-residents is intact.

•The management of the Resource Group indicated plans to offer a large rights issue to acquire funds for further acquisition of US based call centers.




Given the developing price trends and the year end inflation targets set by the State Bank, we expect interest rates to begin rising slightly (50-100bps) during 2HFY04. Inflation as measured by the Consumer Price Index has been accelerating since July, resulting in a 5.4% YoY rise in prices in December. Against this, interest rates as measured by the Weighted Average rates on 12mth T-Bills have been declining consistently since July with the exception of the 45 basis point rise in December.

The Pakistani economy has been growing strongly during 1HFY04 on the back of better than expected industrial and export performance. For FY04, GDP growth is expect to beat the 5.3% target.


The strong growth in the economy has been supported by the growth in consumer financing, on the back of the continuously falling interest rates and the increased awareness of the public with regards to the availability of financing options. This trend has been strengthening as is evident by the rapid rise in private sector credit off take to PkR156.8bn in 1HFY04 against a full year target of PkR85bn. Inflation in Pakistan hit its lowest levels in June 2003 and has been rising since then as is evident in the graph.

Going forward, we expect food prices to continue growing strongly as Eid approaches during February. Furthermore, unless imports of vegetable products begin from India, we are likely to see prices remain on the high side fort the rest of the FY.


Growth has been encouraged by the low interest rates, which have been on a declining trend. Consumer financing has been growing at a rapid rate and the State Bank has in the past indicated that it plans to keep interest rates stable in FY04.






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