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
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
The major developments this week were:
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
•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.
Finance (MoF) is planning to increase National Saving Schemes (NSS)
THIS WEEK'S TOP STORIES
POL PRICES- INFLATION LIKELY TO EDGE HIGHER!
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
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
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.
Mkt. Cap (US
Avg. Dly T/O
Avg. Dly T/O
KSE 100 Index
KSE ALL Share