CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE


STOCK MARKET AT A GLANCE


By SHABBIR H. KAZMI
Updated Mar 26, 2005

 

 

This week KSE-100 index saw a sharp decline in share prices, owing to the selling pressure in OGDC. Other blue chip scrips were also not able to sustain their values as well, owing to the mounting selling pressure. In our view, OGDCL has been the major trigger for the decline. Last week, OGDC was trading at its historic high price of PkR197.85. The decline in OGDCL's share price led the investors to offload their holdings. In our view, future March contract also denied the index to recover, owing to huge exposures and settlement is-sues of March contract. KSE-100 index lost 1534 points over last week.

OUTLOOK FOR THE FUTURE

In our opinion, the market will carry on its down-ward trend next week. OGDCL would continue to exert pressure on the index. We advise our client to keep their exposure within their limit and trade only on a strict stop loss basis. However, individual stock valuations are becoming attractive. Our top picks for next week are HUBCO, FFC, and SNGP.

FUNDAMENTAL CHANGES

The major developments this week were:

  • Federal government is seriously considering to form a working group to revise the Fertilizer policy.
  • Banks have disbursed PkR65bn (or 77% of the target) to the agricultural sector during the first seven months period of the FY05.
  • The full year trade deficit set at US$3.OObn has already been surpassed with the trade deficit for 8 months standing at US$3.47bn.
  • The government continues to look for ways to reduce petroleum prices in the country. While there is no let up in international prices, the government is con-sidering the pricing structure to bring down petroleum prices.
  • In its recently released 2QFY05 report, the State Bank of Pakistan (SBP) has mentioned that Pakistan's Economy is expected to grow by 7.4-7.8% in FY05.
  • SBP has revised its inflation forecast to 8/2-8.8% on the back of higher oil prices.
  • The KSE-100 has lost 1609 points (16%) in the last 5 days.
  • According to the MoF, country's fiscal deficit was recorded at PkR80.2bn or 1.3% of GDP, as against the target of PkR121 bn in the first-half of current fiscal year.
  • Chinese Contractors have finally scrapped the contract with Wapda for construction of Gomal Zam dam located near South Waziristan.
  • International oil prices rose yet again on Thurs-day to $54.13/barrel.
  • Reportedly, a meeting between Chaudhry Shujaat, the president of the ruling party PML (Q), and Akbar Bugti, President of Jamhoori Watan party yes-terday have finally ended the deadlock in efforts to find a political solution of the Balochistan issue.

 

 

DECLINING UNEMPLOYMENT RATE SIGNIFI-CANT?

In our view, Labor Force Survey (LFS) claim of improvement in employment rate is not that significant on two accounts 1) the province wise data shows that improvement in the employment rate was not across the provinces and 2) the significant improvement has come from the bulk of female labor force that is employed as unpaid family workers. According to the latest Labor Force Survey (LFS), unemployment rate has improved from 8.3% in FY02 to 7.7% in FY04. Surprisingly, in the last two years, the female headcount employment generation was re-corded at 1.4 million, which is marginally lower than male employment creation 1.5 million. The bulk of the employment came from agriculture sector (1.6 million). Agriculture growth in FY03 & FY04 was re-corded at 4.1% and 2.6% respectively. Looking for-ward, we expect, further improvement in employment rates owing to record agriculture growth expected in FY05, coupled with increased public sector development spending by the government. Our full-year agriculture growth and GDP growth target stands at 5.5% and 7.4% respectively.

UNEMPLOYMENT DECLINING!

According to the latest Labor Force Survey (LFS), unemployment rate has improved from 8.3% in FY02 to 7.7% in FY04. Surprisingly, in the last two years, the female headcount employment generation was recorded at 1.4 million, which is marginally lower than male employment creation 1.5 million. The bulk of the increased employment came from the agriculture sector (1.6 mil-lion). In total 41.8mn persons were employed in FY04, as compared to 38.9mn persons in FY02. Moreover, labor force participation has increased from 42.4mn in FY02 to 45.2mn in HY04.

KASB VIEW ON EMPLOYMENT RATE!

In our view, Labor Force Survey (LFS) claim of improvement in employment rate is not that significant on two accounts 1) the province wise data shows that improvement in the employment rate was not across the provinces. Unemployment rates increased in Sindh and Balochistan, whereas employment rate saw improvement in Punjab, and 2) the bulk of the female labor force was employed as unpaid family workers during the period. Bulk of the employment creation came from agriculture sector even though the performance of agriculture sector had been disappointing owing to the drought like situation, during the last two years. Agriculture growth in FY03 & FY04 was recorded at 4.1 % and 2.6% respectively.

FUTURE UNEMPLOYMENT OUTLOOK!

Looking ahead, we expect further improvement in employment rates owing to the record agriculture growth expected in FY05, coupled with increased public sector development spending by the government. Ourfull year agriculture growth and GDP growth target stands at 5.5% and 7.4% respectively.

THIS WEEK'S TOP STORIES

FERTILIZER INDUSTRY POSITIVE OUTLOOK

We expect urea demand to grow by 3.5-4.0% during the current year on the back of KASB's revised agricultural growth target of 5.5% for the FY05. We do not expect that the increase in gas prices in response to upsurge in oil prices will not have an adverse impact on fertilizer companies' cash margins owing to their strong ability to transfer the impact to the end consumers. On valuation multiples, we prefer FFC over Engro in terms of better dividend yield and earning growth prospects, and recommend a BUY on. FFBL with a target price of PkR45/share.

PSF: CHOPPY WATERS AHEAD

CY05 has not been a memorable year so far for PSF manufacturers and the deluge is expected to be a prolonged one. On the one hand, firming up of feedstock prices on the back of record hjgh crude oil prices, has pushed up the prices of raw materials PTA and MEG to the peaks of $915/ton and $11207 ton respectively. On the other hand, PSF producers will have a difficult time passing on these input costs to yarn manufacturers as bumper cotton crop has kept cotton price low. Since January 05 primary margins have been under strain and have fallen by as much as 47% to the low of PkR10/kg. Unfortunately, we cannot give the PSF industry a clean bill of health as we do not foresee any significant changes until the next cotton crop and new feedstock capacities come into play.

 

 

UREA OFFTAKE 44% UP IN FEB '05

As per the NFDC report, urea offtake reported a 44.2% YoY growth to 403kt during Feb-05, while DAP offtake registered a 23.3% YoY rise to 20kt during the period. Urea prices are continuously on the rising trend owing to supply shortages while the domestic urea manufacturers are sitting at the dead end inventory levels. Urea retail prices have increased by PkR25/bag to PkR496/bag in just two months of CY05. We expect further pressure in urea prices during the year owing to the supply shortages and delays in imports. Fertilizer companies mainly FFC and FFBL have reported a significant rise in the advances received from customers towards the end of CY04, which encourages them to maximize their output level and reduces their dependence on short-term loans to finance their operations leading to a significant drop in financial charges. We maintain our liking for fertilizer sector.

KSE FUTURES POSITION TO BE SQUARED TODAY

In a marathon meeting held yesterday, the management of the Karachi Stock Exchange decided to withdraw the extension announced for the settlement of the March contract. Earlier yesterday, the KSE had decided to extend the settlement of March contract by almost a week. We believe that the earlier decision did not provide a solution to the current crisis, rather provided an extension to it. We expect the stock market to remain under a bearish spell as investors continue to settle their positions in March contract. However, the stock market might see some respite as short positions are covered for the March contract. The KSE-100 Index has lost almost 24% in the last one week. While individual stock prices have come down to a level where they have become attractive, we believe that it would not be able to investor interest. The investor confidence, specifically of smaller investors, has been severely dented by the continuous decline in stock prices. However, we believe that investors are themselves to blame for taking overstretched positions, and taking the risk of playing the momentum game.

MARKET ROUNDUP

  LAST WEEK THIS WEEK % CHANGE
Mkt. Cap (US $ bn) 43.64 36.72 -15.86%
Avg. Dly T/O (mn. shares) 537.61 135.08 -74.87%
Avg. DlyT/O(US$mn.) 898.93 166.33 -81.50%
No. of Trading Sessions 5 4  
KSE 100 Index 9499.42 7964.95 -16.15%
KSE ALL Share Index 6163.37 5201.61 -15.60%