KHALID is working at Elixir Securities Pakistan, an InvestFinS S.
A. Group Company, as Head of Research. Before joining Elixir he was
working as head of Research at first capital Equities. He has also
worked as an Investment Analyst in Research Department of Aqeel Karim
Dhedhi Securities. Earlier he was associated as Financial Analysts with
First Capital Equities. Before joining the fraternity of Research
Analysts he has worked as Internee at Jahangir Siddiqui & Co.,
Jardine Fleming Pakistan Broking and Faysal Bank. He has done his MBA
from Institute of Business Administration (IBA), Karachi. He is a
candidate for CFA Level III.
Since September 2003, the index movement has been rather erratic. What
could be the possible reasons for the market behavior?
The KSE-100 index touched all time high level at 4,604 on September 12,
2003 after which a steep correction was witnessed. On the other hand
interest rates had also started to inch up, making equity market less
attractive. However once, the market bottomed out at 3,732 on November
6, 2004, investor interest started generating again. Afterward,
improving relations with India and expectations of corporate results
kept the market buoyant. The resolution of the LFO issue also helped the
upward trend of the market.
Why investors' preference seems to be shifting from volume leaders to
second and third tier scrips?
The main reason for the shift of interest from top tier scrips to second
and third tier scrips is fundamental. Most of the top tier scrips are
trading close to their respective fair values and fundamental
developments are not exciting enough to generate investor interest. On
the other hand fundamentals for second tier scrips like cements have
improved. This has called for a re-rating of the cement sector and the
market has reacted accordingly.
When is the next re-composition of KSE-100 due and which of the
companies are expected to be included in the index?
Next composition of KSE-100 index is due in March 2004. There are
expectations that OGDC may be included in the index at that time.
However, by that time OGDC would only have a trading history of 2
months. Minimum requirement for a company to be part of KSE-100 index is
to have a trading history of 6 months. Consequently, according to law it
should not be made part of the index. Having said that, there are
indications that OGDC might be included in the index in March in order
to give a boost to the capitalization of the index.
After the listing of OGDC which other companies are being listed at the
Karachi Stock Exchange?
A number of new companies are in the process of getting themselves
listed at the KSE. Public offering by WorldCALL Broadband has just
concluded. Other new companies to be listed on the KSE in the next few
months include (1)
MACPAC Films, (2)
Universal Board & Industries, (3)
Southern Networks, (4)
Kot Addu Power Co (5)
Pakistan Petroleum, and (6)
Air Blue. Apart from these, government has also mentioned the
possibility of listing UBL on the stock exchanges as part of the
Can new floatation of TFCs be expected in the backdrop of low interest
the current low interest rate environment, where banks are trying to
push credit to the companies, TFC issuance should not be expected. Most
of the companies, in need of funds, can get bank credit at a much
cheaper rate than TFCs. Generally the difference between bank credit and
TFC rate would be in the range of 300-400bps. Companies that have fully
utilized their banking lines are the ones that are likely to go for
public TFCs in the current environment.
What are the result season expectations?
The upcoming result season is likely to be a mixed bag. We expect
the oil marketing companies to witness a decline in profits mainly on
account lower demand of furnace oil in the country. The decline in
furnace oil's demand is on account of (1)
conversion of cement plants to alternative fuels and (2)
lesser demand from the power sector due higher hydel based generation
over the last few months. On the other hand banking sector is likely to
witness a phenomenal increase in profits on account of capital gains
booked on equity and bond portfolios. With the decline in interest rates
in the recent past an upsurge was seen in equity and bond prices. Banks
benefited from the situation and booked capital gains on their holdings.
Another factor positively contributing to the increase in profits of the
banking sector is the declining tax rate. Profits of the fertilizer
sector would also be slightly higher than the previous year on account
of higher offtake of urea during 2003. The gas distribution sector is
likely to witness an increase in profits on account of decline in
What is outlook for textile sector?
upcoming results of the textile sector may show some improvement on
account of a series of debt restructuring carried out by various
companies in light of the declining interest rate environment. However,
going forward, we expect the sector to come under pressure on account of
declining margin due to higher cotton prices. The main impact would be
on the weaving sector in this regard where we expect margins to come
down by 15-18%.