Updated June 26, 2004


The week started with a negative note due to rumors about the change of government and President's statement that the country might face retaliation against Wana operations, which pulled the index down by 2.76% on the first trading day of the week. Tuesday's session was the continuation of Monday's sentiment. The market however managed to recoup some of the losses as a result of the settlement of CVT





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 of 5,248.67.


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 Limited.

•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 meeting.

•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 worth $73.48mn.

•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.


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.


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 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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