CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. STOCKS MARKET TUMBLING
 

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated May 21, 2005

 

 

This week KSE-100 index opened on a downward trend on the back of rumors that SBP might increase the discount rate to 10.0% from 9.0%. On Monday, KSE-100 index lost 95.83 points with oil & gas and banking stock leading the selling pressure. However, market recovered on Tuesday owing to PTCL privatization related news. On Wednesday, heavy badla/COT volumes concerns resurfaced on the scene. This led to selling pressure and evaporated the early gains recorded. Stock specific activities in Oil and Gas sector caused another recovery on Thursday. On Friday market plunged owing to rumors that the SECP might not renew the extension of COT/BADLA phase out date. Rounding up the week, the KSE-100 index lost 111.24 points over the last week.

OUTLOOK FOR THE FUTURE

We expect market to remain range bound next week. However, SECP decision on COT/BADLA phase out date could trigger the market either ways. Our view on PTCL privatization hype remains intact for the next week and we expect PTCL to be the major driver for market sentiments during next week. On the risk side, any adverse news flow regarding forthcoming budget could have a negative impact on market sentiments.

Our top picks for next week are Callmate, Fauji Fertilizer Bin Qasim and Pakistan Oilfields, while we also like PTCL purely as a privatization play.

FUNDAMENTAL CHANGES

The major developments this week were:

•MSCI weightage of Pakistan has increased to 0.29% from the previous level of 0.19%.

•Prime Minister Shaukat Aziz indicates better than expected agriculture sector growth is likely to help Pakistan over 8% GDP growth.

•As per data released by SBP, Pakistan's external debt stood at US$36.62bn as of Mar-05, compared to US$35.26bn in Jun-04

•The meeting of the steering committee on the Turkmenistan, Pakistan, Afghanistan pipeline project ended with no significant breakthrough.

•Domestic petroleum prices maintained for the fourth consecutive week.

•Newspaper reports quote State Minister for IT and Telecommunication, Mohammad Asjad Malhi that bidding for Pakistan Telecommunication Company Limited (PTCL) would be held as per schedule on June 10, 2005.

•The Privatization Commission fixed a price of PkR50/share for the public offering of United Bank Limited (UBL).

•As per newspaper reports, the federal government has hardly utilized PkR72.5bn (36%) of the Public Sector Development Program's (PSDP) total allocation of PkR202bn in the first 9MFY05.

•The Privatization Commission finally released the names of 14 companies that have submitted Expression of Interests for Pakistan Petroleum Limited (PPL).

•Reportedly, the government has sought the services of International Monetary Fund (IMF) to restructure the Consumer Price Index (CPI) basket.

•Rumors indicating that National Refinery Limited (NRL) may fetch PkR370/share on its privatization.

•In the first 10M of FY05 total worker remittances were recorded at US$3.45bn as compared to US$3.21bn during the same period last year.

•Federal budget 2005-06 to be presented on 6-Jun-05.

•Total forex reserves declined by US$232.4mn in less than 2 weeks.

•According to a press release, expansion work in Indus Motor Company (IMC) will commence from September 2005.

 

 

THIS WEEK'S TOP STORIES

PAK-ARAB FERTILIZER LIMITED — PRIVATIZED!!!

Privatization Commission has received the highest bid of PkR14bn (PkR190/share) from the consortium headed by Fatima Group, followed by PkR12bn offer made by Dawood Hercules. As per the management of Fatima Group, they plan to raise urea production capacity by 300k tons in the next two years from existing production levels of 115k tons. The commencement of Fatima Fertilizer and its acquisition would be a bigger threat for Engro Chemical (for NPK business) rather than Fauji Group. Thus our views regarding growth in FFBL and FFC remain intact. We maintain our Overweight stance on Fertilizer Sector and a BUY for FFBL.

POL — PRODUCTION GROWTH OFFSETTING PRICE DECLINE

International crude oil price have stabilized for the time being, after sliding continuously. Crude oil prices are currently at their three-month low. Continuous rise in US stockpiles (currently at their 6-year high), assurance of continued supplies by OPEC, strengthening of the US Dollar, and a decline in oil demand have all prompted a decline in crude oil prices. We are of the opinion that oil prices will continue to hover within the US$40-50/bbl range in the medium term. Despite a decline in crude oil prices, Pakistan Oilfields Limited remains our top pick in the upstream oil and gas sector. We believe that production growth coming through Pariwali Well No. 5 (expected to increase POL's oil production by 20%) is more than likely to compensate for the decline in crude oil prices. As it is, the crude oil forecasts that we have incorporated in our models are well below the current price. Hence, we believe that our profitability forecasts for POL are conservative. We maintain our Buy recommendation on POL with a price objective of PkR340/share.

PAKISTAN TO ACHIEVE 8.35% GDP GROWTH IN FY05!

In his recent statement Prime Minister Shaukat Aziz has indicated that Pakistan will achieve 8.35% GDP growth rate in FY05 against the target of 6.6%. The strong macro picture presented by the Prime Minister continues to support our high agriculture growth target of 5.5% (refer to March-11 weekly review). We concur with the recently released PM declaration of 8.35% GDP growth expected in FY05, on the following account

1) Services sector is set to achieve 7.9% YoY growth owing to the robust performance expected in wholesale & retail trade (carrying 18.4% weight in GDP), 2) Agriculture Sector to achieve 7.5% YoY growth, owing to bumper cotton crop (14.6mn bales) and expectations of a good wheat output (21mn tons), and 3) Large Scale Manufacturing (LSM) to achieve 15.4% growth owing to rising domestic demand. The government has also set a 7% GDP growth rate target for FY06. We are of the opinion that to achieve 7% GDP growth target, substantial investment would be required in LSM. LSM is already operating at high capacity utilization. However, we believe that Services sector will lead GDP growth in FY06. Our only concern is, can Pakistan grow at 7-8% rate over the next 4-5 years with expensive oil?

WORRISOME INFLATION RECORDED IN APR-05

Inflation statistics for Apr-05 have come in above expectations (+11.10% YoY). We believe food inflation was the primary trigger behind the Apr-05 CPI inflation statistics upward march. We are revising our inflation estimates to 9.0% from our previous estimate of 8.5%. Year to date, SBP has raised the 6M cut-off yield by 511bps to curb inflation. However, we believe that the monetary tightening has not succeeded in curbing inflation so far. This indicates rising inflation is fueled by bottlenecks in food supply rather than demand-pull inflation. In addition, rising oil prices on the domestic and international front fueled transport inflation, which along with Housing Rent Index (HRI) are not controllable through monetary policy. Going forward, we believe that the recent move by the government to allow duty free import of major food items from neighboring countries, coupled with bumper wheat crop will cool down food prices. However, our medium-term view on inflationary expectations remains intact. We expect higher international oil prices to remain a threat for GDP growth and expect them to continue feeding medium-term inflationary expectations.

UREA — FAVORABLE DYNAMICS INTACT

Global urea prices (US Gulf) are at record high levels and are expected to peak this year on the back of stronger fertilizer application and supply shortages. This coupled with domestic supply shortages will act in favor of domestic fertilizer companies enabling them to pass on more than the impact of cost side leading to healthy improvement in earnings of fertilizer companies. Strong demand from agricultural sector and supply issues, coupled with fears of rising prices have already resulted in an exceptional growth of 48% in urea offtake during the first four months of 2005. With no major increase in input cost expected in 2QCY05 we expect fertilizer companies to report improvement in gross cash margins for urea.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.88

34.26

-1.78%

Avg. Dly T/O (mn. shares)

400.95

287.58

-28.28%

Avg. Dly T/O (US$ mn.)

705.48

482.80

-31.56%

No. of Trading Sessions

5

5

21

KSE 100 Index

7411.33

7300.09

-1.50%

KSE ALL Share Index

4868.58

4782.50

-1.77%