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.
OUTLOOK FOR THE FUTURE
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
•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
•Pakistan Petroleum Limited applied to the Oil
and Gas Regulatory Authority to sell gas directly to WAPDA's Guddu
•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
•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
•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
•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%
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.
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