THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Apr 17, 2004

 

MARKET THIS WEEK

The index registered a 4 percent WoW gain and closed at 5,589.24 as opposed to 5,443.83 last week. Expectations of strong quarterly results and news that the US would provide Pakistan technical and fundamental assistance in exploiting investment opportunities helped kick the week off on a positive note. Although Tuesday witnessed some profit taking,

 

 

 

 

gains on Wednesday on the back of positive news relating to the cement sector and the generation of higher than expected revenue from GSM license fees more than made up for the loss. The index crossed the psychological barrier of 5500 on Thursday and settled well above it after Friday's session. Gains on the last day of the week resulted primarily from positive sentiments generated in the cement sector in response to a statement made by President Musharraf regarding the local housing sector. Friday also witnessed a turnover of 1.1bn shares - the highest volume ever recorded in the history of the KSE.

OUTLOOK FOR THE FUTURE

The coming week will witness the reporting of first quarter of CY04 results by a number of important companies. With the start of the reporting season, news from the corporate sector is likely to be a dominant factor driving the market once again in the coming week. Given that the market is generally expecting good performance from most of the companies, these results could help in further stretching the ongoing rally.

FUNDAMENTAL CHANGES

The major developments this week were:

•PTCL launched a new facility of phone bill cards which allow customers to pay their bills through the cards. The cards are of various denominations and customers need to dial a number to submit the card number for bill payment.

•Indus Motors launched a new variant of the Daihatsu Cuore last Saturday. The new Cuore is characterised by an automatic gearbox and is priced at PkR459,000.

•As per the FBS, the CPI spiked by 5.3% YoY and 1% MoM during March 2004, which pushed inflation up by 3.7% YoY during July-March 2004. This growth came on the back of higher food and beverage prices, which shot up by 7.6% YoY during March 2004 and by 1.8% from February.

•Reportedly, the capacity utilization of the cement sector reached 82% during the last quarter of the current fiscal year despite some sluggishness witnessed during February and March 2004. For the 9month period, cement sector capacity utilization reached 77.47%. During 3QFY03, total despatches stood at 3.496mn tons with exports accounting for 7% of total despatches. The All Pakistan Cement Manufacturers Association is hopeful of closing the year with an average capacity utilization of 80% for the year, which translates into 15% YoY growth.

•In response to a question raised by a Senator, the Finance Minister disclosed that Honda Atlas Cars, Pak Suzuki and Raja Motors had been accused of evading taxes. Honda Atlas Cars was alleged to have evaded PkR13.4mn in sales taxes, PkR200.7mn in customs duties and PkR30.9mn in other taxes, while Pak Suzuki was alleged to have evaded PkR192.7mn in customs duties and other taxes worth PkR70.5mn and Raja Motors was alleged to have evaded customs duties worth PkR7mn and other taxes worth PkR1.1mn.

•Unilever Pakistan reported a 10 percent drop in sales for 1QFY04 from PkR5,554mn to PkR4,993mn. This decline was accompanied by a 279bps fall in gross margins and a 29 percent reduction in profits from PkR451mn to PkR321mn.

OIL PRICES: MUCH HIGHER, FOR MUCH LONGER

This is an excerpt from ML's research report published recently.

The ML Global Team is increasing its FY04 oil price forecast by 9.4% to US$30.08/bbl and, more importantly, the long-term oil price forecast by 16.7% to US$28/bbl from US$24/bbl previously. While our long term forecast appears aggressive, we note that it is conservative relative to the futures curve.

UPGRADING OIL PRICE FORECAST

The Merrill Lynch oil price view is based on two key tenets:

1. OPEC is intent on managing the oil balance to ensure that average oil prices remain within the organization's US$24-30/bbl (WTI) target price band - a level required to meet OPEC members' budgets.
2. Higher marginal non-OPEC supply costs and constrained investment would lead to disappointing company and non-OPEC supply growth.

We believe OPEC is now stronger when compared to 1999. Marginal non-OPEC supply costs have moved significantly higher over the past five years and thus the prospect of disappointing non-OPEC supply growth has tilted the global supply/demand forecast in OPEC's favor. As a result, we are increasing our oil price forecasts to the upper end of OPEC's stated US$24-30/bbl band, i.e. to US$28/bbl.

Over the past decade, oil markets have experience two major demand shocks:

1. 1997-98: The Asian currency and financial crisis, which led to a sharp slowdown in worldwide oil demand.
2. 2001-02: A slowing economy was further exacerbated by the 9/11 terrorist attacks.

Since 1999, OPEC has very effectively managed the oil balance to ensure oil prices high enough to meet its members' domestic budget requirements. In the aftermath of the Asian contagion, OPEC throttled back production to respond to weakening demand. As the global economy rebounded with strong growth in 2000, OPEC aggressively increased production to meet accelerating demand while during the 2001 to 2002 downturn, OPEC effectively navigated the storm by curbing output. There are, in fact, highly correlated movements between monthly average crude oil prices and OPEC output, which speaks volumes about OPEC's ability to administer prices in the target band. With global demand now increasing again and nonOPEC supply disappointing, OPEC is in an even stronger position to manage the oil balance.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

25.02

25.93

3.64%

Avg. Dly T/O (mn. shares)

726.75

879.72

21.05%

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

650.03

753.63

15.94%

No. of Trading Sessions

5

5

 

KSE 100 Index

5371.51

5582.30

3.92%

KSE ALL Share Index

3497.63

3632.84

3.87%