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 July 09, 2005
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The preceding week was dominated by news related to possible developments on the badla phase out front. The market largely remained directionless with confusion being the order of the day for most part of the week. Wednesday, however, was an exception as the market reacted to hike in T-Bill cut-offs on 3 months and 12 months tenor eroding most of the intra-day gains. The badla story took an interesting turn towards the end of the week with KSE squaring off against SECP taking a decision not to reduce badla positions from this week and recommend parallel operations of the two. The step did not create any significant impact due to uncertainty but the initial rise in the index due to positive rumors was sufficient to ensure a 2% WoW increase in the index.

OUTLOOK FOR THE FUTURE

Response of SECP to the bold step taken by KSE should be the key event for market direction.

Accommodative stance by SECP could see sentiments soar while stern response from the regulator would dampen spirits in the market. Inflation statistics for the month of June and the much-awaited revision in NSS rates will also impact sentiments. Focus on fundamentally sound stocks with a bias towards Callmate Telips, KAPCO, POL, Faujis and Packages.

FUNDAMENTAL CHANGES

The major developments this week were:

•APCMA released cement dispatches data for FY05. Cement sales registered 20% YoY growth during the FY05 to 16.353mn reflecting 18% YoY growth in local sales and 40% YoY growth in exports.

•The Bank of Punjab has applied for a life insurance license with the SECP.

•The latest concern regarding Pakistan's textile exports is a proposed change in the EUís ëRules of Originí. Exports could suffer as a result of granting duty free access to Bangladesh and Sri Lanka but not Pakistan. This would move the location of processing activity to the preferred countries.

•State Bank of Pakistan mopped up PkR125.72bn on Wednesday. SBP raised the 3M and 12M yield by 18bps to 7.69%, and 25bps to 8.70% respectively, while maintaining the cut-off yield of 6M T-bill.

•BoD of Karachi Stock Exchange (KSE) has decided that it would not be reducing badla positions this week and has recommended parallel running of badla with margin financing.

•Ministry of Finance (MoF) is planning to increase National Saving Schemes (NSS) rates shortly.

THIS WEEK'S TOP STORIES

POL PRICES- INFLATION LIKELY TO EDGE HIGHER!

Following the recent 7-8% hike in petroleum prices, we expect oil prices to continue feeding higher inflation in the months to follow. Previously, we had highlighted our concerns on higher oil prices and its impact on inflation, however we also expect food inflation to taper off in the months to follow and mitigate the impact to a certain extent. Given the recent surge in POL prices we expect transport inflation (carrying 7.32% weight in CPI) to reach 13.00% YoY in July-05 (compared to our expectation of 9.6% YoY for Jun-05), and fuel inflation (carrying 7.29% weight) to touch 5.80% YoY in July-05 (compared to our expectation of 5.4% YoY for June-05). As a result of higher transport and fuel inflation we expect CPI headline inflation to reach 11.5% in July-05 as against our expectation of 9.3% YoY in Jun-05. Having said that, we would however, like to mention that our view on oil inflation is not sticky, owing to price adjustable nature of domestic oil prices (OCAC steers oil prices on fortnightly basis).

FY05 — CEMENT DEMAND PEAKING OFF!!!

Cement sales have reported 20% YoY growth to 16.353mn during the FY05. We believe that cement demand (both local and export sales) has peaked off and will gradually start growing at a decelerating rate in the years to come. In addition, we expect commencement of Chakwal Cement (acquired by Orascom Cement & Construction Industries) to threaten market share of existing cement exporters to Afghanistan. Despite a healthy growth in bottom line of cement companies, we do not expect this to translate into high cash payouts owing to massive expansion plans undertaken by major cement companies while we may also witness dilution of earnings through rights issue. We maintain our Underweight stance for the cement sector whereas Maple Leaf (Target price: PkR32/ share) appears attractive to us at current levels.

DEWAN SALMAN: AT LAST THE RECOVERY!

FY05 is finally over for Dewan Salman and it has to have come as a welcome relief. After a very sorry performance over the last 12 months, we think the PSF cycle has bottomed out and DSFL is on brink of an up cycle. Expect to see the early stages of recovery set in from August 2005. The budget has delivered the anticipated good news for textiles. Meanwhile PTA and MEG have softened considerably since April, owing to thin demand emanating from China. Pakistanís PSF industry is looking at favorable demand supply dynamics ahead placing DSFL, the largest market player, in a clear position to reap benefits. We recommend that investors BUY DSFL with a price objective of PkR28.73/share.

PERSPECTIVE: BE PATIENT, BE BULLS!

This is an excerpt from a strategy piece released yesterday. Despite undergoing a technical correction and losing almost a third of its value, the market is still struggling to find a sustainable level. Even the best camouflaging terminology ìRange Boundî cannot be applied to the current situation owing to the prevailing confusion over regulatory initiatives, misperception of stretched fundamental valuations and margin financing adjustments. With no significant change in the underlying fundamentals of the economy over the long term, investors are not willing to digest this steep fall. However they are equally unwilling to believe that the market will roll back to its previous bullish tone. In our first issue of this strategy vehicle, we will look into various aspects of the market bull run and the path it is likely to adopt in the short to medium term.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

34.72

35.45

2.10%

Avg. Dly T/O (mn.shares)

199.24

183.19

-8.06%

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

357.34

320.91

-10.19%

No. of Trading Sessions

5

5

 

KSE 100 Index

7464.60

7588.94

1.67%

KSE ALL Share Index

4884.98

4969.93

1.74%