Achieving the 6,000 level does not look remote possibility


Nov 15 - 28, 2004





The way KSE-100 index has moved lately, it is expected to cross the 6,000 level any time. However, many ifs and buts are attached to this. The positive point this time is that the index is moving up not because of the scrips enjoying heavy weight but due to the collective improvement in the prices of most of the volume leaders. The only concern is how the investors are going to respond in the rising inflation and interest rates scenario?

Before deliberating further it is necessary to review the market behavior during this week. The market remained under bullish control and closed with 132 points gain. Falling international oil prices on one hand reduced speculative interest in oil exploration and production companies and on the other hand triggered interest in other scrips. The announcement regarding PTCL led to enhanced interest in the scrip. The punters launched a rally in PTCL. However, many such announcements have been made in the past. Unless the process of de-bundling of the company is not completed any one expecting its privatization is hoping against the hopes.

However, many analysts expect the market to remain buoyant. The holidays will give enough time to the investors to re-work their strategies. The next rally is expected to come from oil marketing companies. The decision by the government to compensate the reduced income has improved their bottom line. Though, the government still denies considering proposal regarding increase in POL prices, most the analysts are of the view that the status quo has to end one day. Whereas some analysts are of the view that the much talked about higher oil prices has no relevance for Pakistan. They say that the country is paying much below the international prices. Besides, oil prices have already started sliding down, leaving no room for the government to raise POL prices.

Cement sector seems to be getting attention of investors once again. However, some analysts are of the view that most of the scrips belonging to the sector are not the appropriate choice for the investors. These suit only the day traders or the speculators, to be precise. It is on record that sponsors of cement companies do not like to share the income with the shareholders. The possibility of getting any dividend is getting bleaker because most of the dividend paying companies have already initiated ambitious expansion programs. On top of every thing the hype in cement sector is based on expected announcement regarding dams and exports. One may feel comfortable regarding export expectations but commencement of construction of even one dam looks too remote a possibility, at least in the near future.



Lately some activity has been witnessed in the banking sector. However, the rally was mainly driven due to the payout by the NIT. One has to be careful in selecting a scrip mainly because of the enhanced paid-up capital requirement fixed by the central bank. Some of the banks enjoying good earning prospects may not be in a position to pay dividend because they will be issuing bonus shares to meet the requirement.

With the decision by the central bank to curb speculation in dollar, the incentive for accumulating the currency has been lost. However, the other two options, gold and real estate have not lost the glitter. According to an analyst, investment in real estate in Pakistan is not a concern. However, the real cause of concern is flight of capital to the Middle East. As regards gold, the peak demand season is expected to be over in another two months.

Reaching the conclusion that equities market will continue to witness influx of money, the only word of caution is that weak holders must stay away from the market. The intra day volatility has the potential to disturb the heart beat, which may prove too fatal for the novices. The other piece of advice is that investors should abstain from accumulating a few scrips only. The smaller investors should not invest directly. They should only invest in mutual funds and the preferred choice should be the open-end funds.

Another suggestion is that new investors should wait for some of the forthcoming IPOs and POs. The Karachi Stock Exchange has already approved listing of some of the promising companies and more are in the process of completing the formalities. Telecommunication sector offers good growth potential but it also face growing competition. Only those companies can beat the competition, which can come up with innovative strategy to achieve an edge over the competitors.