issue and the news about SBP rejecting the auction
bids for T-bill. The index recovered by 0.17% on Wednesday. The
government approval of CVT and IMF approval of US$235mn loan for
Pakistan allowed bulls to take over the market, which pushed the index
up by another 1.22% on Thursday. The waves of uncertainty on account of
rumors regarding PM Jamali's removal sent the market into negative zone
on the last trading day of the current FY. The index closed at 5,102.22
on Friday, thus increasing the WoW loss to 2.79% over last week's close
OUTLOOK FOR THE FUTURE
Rumors attached to a possible removal of PM Jamali
will be the market focus during the next week, which might increase
political uncertainty in the country. Meanwhile we also expect increased
institutional activity on Monday, which would be the first trading day
for the next FY. We expect PTCL to lead the market in the short term
owing to positive news flows coming out of tomorrow's company board
meeting. Similarly the excess cash liquidity in the market will keep the
overnight rates at very low levels and this will also lower the badla
rates further. The PC may announce the offer date for PPL IPO, which
will also push the investors to start sparing cash for this fairly large
public offer. Though fundamental side is expected to see some positive
newsflow, we fear that political uncertainty will rule the market. We
expect the market to stay range bound with a trading range of 5000-5250.
We maintain our earlier stance that investors should inject the first
25% of their cash positions in the market at this level.
The major developments this week were:
•According to an announcement from the Karachi
Stock Exchange, the future list has been extended to 15 companies namely
OGDC, PTCL, PSO, DG Khan, POL, Hubco, FFBQ, ICP SEMF, NBP, DSF, SNGPL,
Maple Leaf, Lucky, SSGCL and Engro.
•Global Securities Limited was appointed as the
lead manager for the Initial Public Offering of Kot Addu Power Company
•MQM has come up with an ultimatum to the
government asking it to fulfill a few demands otherwise the party would
quit the provincial government.
•A French cement company has recently signed an
agreement with Qatar National Cement Company for the construction of a
1.2mntpa cement plant.
•The task of monitoring and revising end consumer
prices of domestic oil products has now been entrusted with the Oil and
Gas Regulatory Authority.
•US$903mn have been received in FDI during the 11
months of the current fiscal year.
•The duty reductions on the imported cars has
shaken the industry where all the auto manufacturers are trying to
contact all the relevant ministries to stop this government move.
•The government is expecting PkR22bn from PTCL and
PTA in FY05.
•Telecard is planning to invest about US$50-60mn
over next 12 months to expand its WLL capacity by nearly 500k
connections in its area of concentration.
•PTCL announced a PkR25bn development budget which
will include further allocations for all the ongoing projects and 2mn
line expansion plan
•Finance Minister Shaukat Aziz announced a number
of changes to Budget '05 as the general debate on the Budget in the
National Assembly was wound up on Tuesday.
•APCMA has reported an increase in the production
quota to 94 % for the cement companies.
•Reportedly, two representatives of the MMA, the
opposition leader and the NWFP Chief Minister will not attend the NSC
•The Federal Minister assured the extension of 5
year subsidized gas supply period for BMRs in the fertilizer industry
•The SBP scrapped all bids in the 6-month T-bills
auction held yesterday to keep yields from rising too sharply.
•The government recently issued an order requiring
all local auto manufacturers to make deliveries only if the customer has
an NTN number.
•The political scene in Islamabad is heating up
again. While the opposition may have some justification for not
attending the first meeting of the controversial National Security
Council, its attitude towards the budget approval was unreal as the
approved budget carried most of the ingredients, which the opposition
has been demanding in the recent past.
•All three stock exchanges have cleared the IPO for
sale of 15% of PPL.
•DG Khan Cement has signed an agreement with FL
Smidth of Denmark for the supply of a 6,700tpd cement-manufacturing plan
•As per figures released by the SBP, Pakistan
received US$903mn in foreign direct investment in the first 11 months of
FY04, 21% YoY higher than the US$745mn that was received during the same
period last year.
POLITICS - LATEST DEVELOPMENTS
Though the market has been exceptionally passive in
terms of its reactions towards political developments, we feel that some
tremors are likely to be felt in the short term. From various actions by
different political authorities against MMA, it seems that President has
decided to take on MMA directly. The brutal operation in Wana, strong
comments against MMA's boycotting first NSC meeting, ban on entry of MMA
leadership in the province of Sindh and MMA's support for Jamali are the
factors that are indicative of this. Though the stock market's medium
term direction is still attached with the continuation of the President
and the finance minister, the short-term direction can be influenced by
the political changes affecting Musharraf's strength. Given the fact
that ARD is already playing a true opposition role, President's anti MMA
stance would push the religious hardliners nearer to the ARD. And this
would bring further problems for the ruling alliance in the assemblies.
It would be difficult for Musharraf and Shujaat to keep the ruling
party's strength intact as PML(Q) is already facing in-house disturbance
owing to relatively stronger role of the patriots in the government.
Market will remain range bound despite high cash positions of the mutual
funds. National Security Council Meeting.
The first meeting of National Security Council was
marred by the absence of the opposition parties. The agenda of the
meeting was very ceremonial in nature where most of the presentations
were replications of what we are reading in the newspapers on account of
Indo-Pak relations and law & order situation. However, the President
came up with a strong criticism over MMA's absence in the NSC meeting,
which appeared to be out of proportion given the MMA's stance over the
NSC right from the beginning. Though both Musharraf and Jamali came up
with clarifications regarding a consultative nature of this forum, the
general opinion over NSC remains as an institution overriding every
other representative office while NSC's proceedings will continue to be
dominated by the President and the military. While the current
government seems to be very committed with the NSC and its role, we are
of the opinion that almost all the serious political parties are not in
favor of this institution and future change of governments will prove to
be an end of this forum. As for Musharraf's remarks over the "NSC's
averting any Martial Law in future", we tend to differ with the
Presidential opinion owing to the basic fact that "sanity of the
constitution" can only protect us from any such military moves,
otherwise at crucial times military does not require any such forums to
dismantle the political governments.
SINDH GOVERNMENT ACTING AGAINST MMA
The province of Sindh is still shrouded with
uncertainty owing to the disturbances within MQM. Though the new Chief
Minister has been able to finalize his cabinet, we feel that short term
future will remain very fluid for him. In particular his controversial
decision of banning MMA leaders to enter Sindh would cause him some
troubles within the province where he would be taking on religious
hardliners directly. In our view this conflict would not resolve the
problem of law & order in the province. As for peace march of MMA,
we feel that this rally is unlikely to remain peaceful which would push
Karachi to face a few more strikes.
PM - WILL HE STAY OR WILL HE GO?
PM Jamali, once again refuted all speculations about
his resignation and departure from the top political office in the
country. However, Islamabad is still under strong attack by rumors
regarding Jamali's removal before President's foreign trip scheduled for
July 3rd. Despite recent assurances given by Ch. Shujaat on this
subject, the possibility of a change is very likely. However, two
aspects are important on this account: First, the mechanics of this
change are difficult to imagine. Any in-house change would expose the
government to strong resistance from the opposition parties and in fact
will push the MMA closer to ARD, thus making the opposition almost
equally strong within the parliament. And a surprise can also be seen if
the government goes for a secret ballot for the selection of the new PM.
Second, it would be difficult to find any Jamali like person from the
assembly for the President. In the new PM, Musharraf would like to have
a weaker personality as well as someone presentable to the nation and
the external world. Now if he goes for anyone from the political
personalities, both qualities are difficult to be found in any person;
and of course the selection of any non-political person would be
difficult to justify under this democratic arrangements. The names that
are being tossed up for the PM posts are unlikely to fulfill Musharraf's
requirements for the short to medium term. The other challenge for the
President would be to get Jamali's replacement from within the smaller
provinces, where he would be stuck with the problems like credibility
and pro Western issues. Apart from existing Senate chairman, Mohamamd
Mian Soomro, it is hard to find any other name.
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