CAPITAL MARKETS

 

1- FOREX KERB WATCH

2- COT WEEKLY REVIEW

3- FINEX WEEK

4. STOCK WATCH
5. STOCK MARKET AT A GLANCE
6. PAKISTAN WEEKLY REVIEW
 

 

STOCK MARKET AT A GLANCE

 

By SHABBIR H. KAZMI
Updated May 28, 2005

 

 

The week began with a negative note on Monday with the rumors that SECP has rejected KSE's request to increase the limit on futures counter to 5% of free float from the current limit of 1% of free float. However, market recovered on Tuesday owing to positive development on PTCL's privatization front. On Wednesday, the market remained highly volatile with a mix of positive (pre-bid meeting for PTCL) and negative news (69bps increase in 6M T-bills cut off yield). Lack of institutional support kept the market under pressure during the remaining days of the week while bomb explosion at Bari Imam shrine in Islamabad added fuel to the drowning index on Friday. Rounding up the week, the KSE-100 index lost 685.23 points over the last week.

OUTLOOK FOR THE FUTURE

We expect market to remain under pressure during the last week before the Federal Budget '06 while the pre-budget rally is unlikely to drive the market owing to the shattered investor confidence and uncertainty regarding the futures. With the continuous decline in KSE-100 index, the scrips with fundamentally strong backing and high dividend yields have become extremely attractive. Our top picks for next week are Callmate, Fauji Fertilizer, KAPCO, Hubco, Fauji Fertilizer Bin Qasim, Lucky Cement and Pakistan Oilfields.

FUNDAMENTAL CHANGES

The major developments this week were:

•Reportedly, the Central Board of Revenue (CBR) has proposed an increase in Withholding Tax (WHT) on shares to 0.01% from the current level of 0.005%.

•Securities and Exchange Commission (SECP) has rejected proposals to increase the limit on futures counter to 5% of free float from the current limit of 1% of free float

•According to data released by Federal Bureau of Statistics (FBS), trade deficit in the first 10M was recorded at US$4.84bn (145.2% YoY) as compared to the full-year target of US$3.0bn

•Total Foreign Direct Investment (FDI) was recorded at US$891.5mn (17.2% higher YoY) in the first 10M of current fiscal year.

•The Privatization Commission (PC) has reportedly asked Saudi based Kanooz Al Watan to deposit the bid money for KESC by 15-Jun-05.

•Pakistan Telecommunication Authority has revised international settlement rates effective July 1 2005.

•In a meeting chaired by Governor State Bank of Pakistan, a consortium consisting of 5 banks has committed to provide PkR30bn in margin financing for the stock market from next month

•The privatization of National Refinery Limited is likely to go ahead with the Privatization Commission intent on holding the bidding for NRL on May 31.

•As per newspaper reports, experts on WTO rules and regulations are confident that despite being a solo case, Pakistan's case in requesting for 2-year extension in auto deletion program is strong.

•A pre-bid conference of prospective PTCL buyers was held on May 25, 2005.

•The Karachi Stock Exchange has approved the provisional listing of United Bank Limited and trading in the stock began on 26-May-05.

•The Oil and Gas Regulatory Authority approved a 5% (PkR10/mmbtu) increase in industrial and consumer gas tariffs.

•Government is likely to impose 0.1% withholding tax on cash bank transactions exceeding PkR10,000 in the forthcoming budget..

•According to newspaper reports, talks between Federal Minister for IT and Telecom Mr. Awais Leghari and PTCL employees union ended without results.

•Government has directed all fertilizer manufacturers to maintain uniform urea prices across the country through their dealers network.

THIS WEEK'S TOP STORIES

 

 

NISHAT MILLS LTD 1HFY05 — RESULTS PREVIEW

Nishat Mills Limited (NML) is set to announce its results for the 1HFY05 tomorrow, 24 May 2005. We expect the company to report an after tax profit of PkR1,168mn (EPS: PkR8.04) for the half year as compared to PkR300mn (EPS: PkR2.07) for the same period last year. Higher volumetric growth accruing from the Umer Fabrics merger as well as export led growth contributes to this rise in profitability. Lower cotton prices as well as higher fabric prices in the quarter lead us to believe that Gross Margins will stand improved. We have a positive outlook on Nishat's future growth, however, we highlight the risk factors, which are i) the duty structure, and ii) higher cotton prices, going forward.

SBP 3Q REPORT — STRONG MACRO INDICATORS

In its recently released quarterly report, the SBP has shown full confidence on the country's macroeconomic indicators. According to the report, 'the economy is continuing to accelerate and well set to exceed the annual growth target for the third consecutive year. Against a strong macro backdrop, the SBP has maintained its previous GDP growth target of 7.4-7.8%. We believe that SBP growth target for the current fiscal year is realistic owing to broad based growth recorded in all corners. However, SBP has yet again raised its concerns over inflationary pressure in the economy. In the first 10M, average CPI inflation was recorded at 9.27% YoY as against the revised SBP full year target of 8.2%. The SBP has also revised its inflation target to 9.0-9.4% (from 8.2-8.8%) for FY05 in the recently released report. In our view, inflation recorded in the first 10M is due to 1) food inflation on account of supply bottlenecks, 2) rising oil prices on both domestic and international front and, 3) above target credit off take (PKR362bn in 10m). Going forward, with the view of rising interest rates we expect GDP growth rate to slow down in FY06 to 6.8% (from 8.0%). At the same time, we expect inflation to decrease as well, but with a time lag.

CEMENT SECTOR — SUPPLY ADDITION CONTINUES!

The existing cartel arrangement in the cement sector encourages capacity additions as everyone, irrespective of efficiencies gets a share in the pie. Since large players are undergoing massive expansions, smaller cement companies are also forced to announce expansion plans in order to maintain their market share despite their relative inefficiencies. We believe that the ongoing expansion spree in the cement sector would lead to an idle capacity of over 20mn tons by FY09. Possible expansions are likely to be announced by Kohat Cement and Essa Cement while we also expect commencement of Galadari Cement and Mustehkam Cement. We maintain our underweight stance owing to concerns over excessive supply additions and the likely break up of the cement cartel.'

SHORT TERM RATE HIKE — TIME OUT!

The outcome of yesterday's 6M T-bill auction clearly indicates that short-term rates have peaked out. We believe that SBP has completed its aggressive monetary cycle at the short end of the yield curve. According to the details, yesterday SBP raised 6M cut-off yields by 68bps (against market expectation of 100bps). With monetary tightening, we believe SBP has achieved twin objectives 1) the pace of private credit off take has slowed down, and 2) broad money (M2) growth is well under control. In little over first ten months, M2 growth was recorded at 14.34% YoY (lower than nominal GDP growth rate). As FY05 draws to an end, we expect short term interest rate to remain stable from now onwards. However, our view on increase in longer term interest rates remain intact. We are not ruling out the possibility of another hike of at least 100bps in the discount rate from 9.0% to 10.0% in the medium term. Going forward, we expect longer-term interest rates to rise more sharply than shorter-term rates over the next few months. We expect 6M cut-off yield to reach 8.0% by June-05.

NRL — GOING UNDER HAMMER ON MAY 31

Contrary to our expectations, the Privatization Commission is moving ahead with privatization process of National Refinery Limited and has scheduled bidding for 51% stake of NRL on May 31. There are a total of 11 parties that will be bidding for the government stake in NRL. We were expecting a delay in the bidding of NRL on account of certain outstanding issues that we thought would be resolved before the bidding. However, reportedly the PC has decided to move ahead with the privatization of NRL in its existing status.

Sustainability of the tariff protection available to the refineries in Pakistan, in our opinion, is likely to be the biggest concern for the bidders. In addition, the issue of outstanding receivables still needs to be resolved.

We therefore are of the opinion that the bidders are likely to make some adjustment for these concerns in the bid price.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.26

30.61

-10.65%

Avg. Dly T/O (mn. shares)

287.58

218.57

-24.00%

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

482.80

328.87

-31.88%

No. of Trading Sessions

5

5

22

KSE 100 Index

7300.09

6467.15

-11.41%

KSE ALL Share Index

4782.50

4273.42

-10.64%