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 June 11, 2005

 

 

MARKET THIS WEEK

Announcement of delay in PTCL's privatization dented the market performance during this week. However the market welcomed the announcement of Budget FY06 positively on Tuesday as the government did not raise capital value tax (CVT) while Nishat Group stocks (NML, Adamjee and MCB) outperformed the market on the back of tax incentives to textile, insurance and banking sector. The market remained under pressure throughout the week owing to conflicting statements given by PTCL management and Employee Union Leaders over strikes and privatization. Meanwhile, rumors that the Prime Minister has resigned from his office on Wednesday coupled with badla phasing out added fuel to the negative market sentiment. The market underwent a correction phase on Friday as investors booked profits. Rounding up the week, the KSE-100 index gained 132 points (1.8%) over last week.

OUTLOOK FOR THE FUTURE

The delay in privatization of PTCL and prolonged strike by the employees' union could prove to be the major negatives for the market during the next week as well. Any progress on the talks between the government and PTCL's employee union leaders and announcement for new bidding date for the privatization would be the only factor which can possibly change the depressed market sentiments. Meanwhile volumes in ready market will further dry out during the second week of Badla phase out while we may expect some shift from ready to futures counter. Overall we expect the market to remain under pressure during the next week. On fundamental basis, we like Callmate, Fauji Fertilizer, KAPCO, Fauji Fertilizer Bin Qasim, Pakistan Oilfields and Packages.

FUNDAMENTAL CHANGES

The major developments this week were:

•The outgoing fiscal year made history with attainment of extraordinary (8.4%) GDP growth.

•Twenty-two out of twenty seven employees' union representatives left Islamabad for their respective stations to lead another anti-PTCL privatization strike if talks between the two parties failed to make any progress.

•According to newspaper reports, the Cabinet has disallowed budget proposals for 6% withholding tax on locally manufactured cars and 7.5% excise duty on fees and commission to be charged by banks for services for issuing L/Cs and guarantees.

•The Indian Oil Minister has stated that Pakistan, Iran and India will finalize all the necessary formalities by Dec-05 whereas work on the proposed gas pipeline will start in 2006.

•Government, in an emergency meeting has decided to deploy further Rangers and law enforcing agencies on PTCL installations in order to avoid any untoward incident emanating from the strike.

•As per news reports, Engro Chemicals plans to set up a urea plant in Oman as the government has not ensured long-term gas supply to Engro for setting up a new urea plant in Pakistan.

•The President has expressed his displeasure on the rising inflationary trend, and directed the Ministry of Finance to take appropriate measures to check the trend of rising prices.

•The Chairman Securities and Exchange Commission of Pakistan ordered a probe in to the decline in the stock market on Wednesday.

•According to the data released by State Bank of Pakistan (SBP), current account deficit was recorded at US$1.15bn in the first 10M of current FY compared to a surplus of US$2.07bn during the same period last year.

•Oil and Gas Regulatory Authority has reportedly sought government's approval for a 5.5% increase in gas tariffs.

THIS WEEK'S TOP STORIES

PTCL STRIKE ENDS — BIDDING DELAYED

The weekend witnessed the stand off between PTCL employees union and management culminate with materialization of the worst-case scenario — delay in bidding of PTCL. The development is likely to carry negative implications for local market sentiments and other privatization transactions planned by the government (employees have a precedent as to how to use their influence while prospective bidders have an additional issue to cater to). We, however feel that despite the setback, PTCL's privatization is not likely to head for the backburner given importance of the transaction and government's continued commitment to privatization. The deadline of 30 June 2005 though, seems a bit aggressive despite the assurance of announcement of new date within a day or two. On the secondary counter, news flow should continue to drive prices. From a fundamental perspective we recommend a HOLD at current levels.

 

 

BUDGET FY06 — EXPORT ORIENTED

•Overall, the Federal Budget does not carry any specific incentive for the stock market.

•However, stock market participants are likely to heave a big sigh of relief as rate of Capital Value Tax on equities has been maintained at 0.01% for the coming year.

•Reduction in import duties on raw materials, machinery and spare parts are all aimed at providing incentives to the domestic manufacturers to go for expansion, especially in the textile industry.

KSE — BADLA PHASE OUT BEGINS!

We expect KSE's performance to remain range bound over the near term as liquidation of badla position is likely to result in a supply overhang in the market. Badla positions in the remaining 7 stocks stand frozen as of yesterday, 7-Jun-05, and have to be reduced by 8.25% every week. With margin financing still not available, we believe that the volumes at the KSE are likely to take a dip, which in turn is likely to affect KSE's performance. We expect the market to remain range bound in the near term. The only trigger for the market remains the progress on PTCL's privatization where we believe that any delay can significantly affect market sentiment.

SBP — DICTATING THE TERMS

Following the change in format of T-bill auction, we believe State Bank of Pakistan (SBP) is better placed to dictate its terms. This is evident in the outcome of T-bill tender held yesterday. In the tender, SBP lifted PkR108.5bn without raising the cut-off yield significantly. SBP raised the 3, 6 and 12M cut-off yield by 15, 12 and 20bps respectively. With this auction, SBP has achieved the following objectives 1) Wiping off full inflow of PkR106bn, 2) Keeping the money supply growth under check, and 3) ensuring positive real interest rates. Year-to-date (June 6th), money supply growth has been recorded at 15.35% as compared to full-year nominal GDP growth rate of around 17.5%. However, inflation statistics for the month of May-05 will be released on Jun-11, which will set the direction for future interest rates. We expect inflation for the month of May-05 to remain around 8.0% YoY. With this, we also expect 6M T-bill rates to remain around 8.0% by the end of current fiscal year.

PTCL: WILL BID PRICE EVENTUALLY NOT MATTER?

Are we reaching a stage where privatization price of PTCL no longer remains the focal point for market participants? With each passing day, things at PTCL seem to be getting from bad to worse and seemingly progressing towards the worst. Delay in privatization was probably the best that a sadist could have hoped for last week. Within the course of the week, however, pessimism has scaled newer heights. No one seems to be talking about the bid price any longer. In such a scenario it is quite possible that execution of the transaction or otherwise becomes the focal point of privatization rather than the price.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

33.82

34.37

1.63%

Avg. Dly T/O (mn. shares)

325.06

293.18

-9.81%

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

462.72

454.92

-1.69%

No. of Trading Sessions

5

5

23

KSE 100 Index

7213.17

7345.29

1.83%

KSE ALL Share Index

4728.62

4814.67

1.82%