The State Bank of Pakistan released its Financial
Market Review, highlighting key trends and developments in the equity,
forex and money markets. A closer look at the equity market segment of
the report reveals some interesting facts. 1) Overall corporate earnings
of a sample of 265 listed companies witnessed growth of 26.5%. 2) A
total of 16 companies were floated during the year raising the listed
capital by Rs 55.6 billion as compared to 6 floatations during the
previous year raising the capital by Rs 4.6 billion. 3) Market
capitalization to GDP ratio improved from 19.7% in FY03 to 26% in FY04,
the largest contribution came from listing of OGDC.
The improvement in KSE-100 index was driven primarily
due to 1)
improvement in economic fundamentals, 2)
prevailing low interest rates and 3)
improved corporate earnings. Low interest rates also added substantially
to the profitability of commercial banks, through increased credit
offtake as well as capital gains on their long-term bond holdings. Yet
another factor contributing to improved sentiments was the public
offerings of a number of state-owned enterprises.
The strong rise in the equity market, together with
the continuation of the low returns on alternate investment also spurred
the development of the mutual funds sector. The year saw the addition of
three new closed-end mutual funds, with total asset under management
nearly doubling. However, corporate bonds market remained subdued,
largely due to low interest rate environment.
The market lost the steam on the last trading day of
the week. On Friday, the market opened at a positive note and the
KSE-100 index also touched a record high level of 5,774.51 points. While
every one was getting ready for the celebration, the index took a
nosedive. At the end of the first trading session, the market closed at
5,656.58 level with a loss of 64.78 points. While most of the analysts
were expressing their serious concern on the growing Badla volume, no
one was ready to see the sharp decline. The fall was attributed to a
rumour that one of the leading brokers burst exposure limit, which led
to forced selling. Since nothing was wrong with the economic
fundamentals, others chose to buy at bargain price. One may say that the
regulators woke up a little late, as usual, but certainly before the
bubble would have burst.
Baring Friday's unceremonial fall, the market is
expected to remain robust at the back of forthcoming result
announcement. Listing of KAPCO and Attock Petroleum also has the
potential to attract fresh and large scale investment in the equities
Lately, some analysts have been hinting towards
rising Badla volume and also terming it a potential threat. However,
some analysts do not consider it a serious threat as the system is
gradually being phased out. The share of future contracts in daily
turnover is also on the rise.
The quick recovery on Friday also confirms investors'
confidence in the market. Now market punters are talking about KSE-100
breaching 6,000 barrier. Keeping in view the economic fundamentals this
does not look a remote possibility. The central bank's efforts to
contain interest rates and depreciation of rupee along with declining
oil prices, bodes well for the corporate sector.