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 16, 2005
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The market in general lacked confidence and there was a mixed trend during the week in light of the continuing liquidity problems and the COT issue. On Monday, the market opened on a positive note due to the COT phase out suspension news, but the gains were short-lived, as the cap on Badla financing disappointed the investors. In the absence of margin financing, market remained under pressure on Tuesday as well. However, the market witnessed a sharp decline on Wednesday owing to the rumors regarding PPL's offshore discovery failure. On Thursday, market staged a marginal recovery as the investors were expecting the availability of parallel financing options. On the last trading day, investors remained on the sidelines due to the KSE-SECP standoff. However, the market witnessed stock specific activity during the last session, as board meetings of the listed companies are around the corner. On the whole, KSE-100 Index shed 53 points over the last week.

OUTLOOK FOR THE FUTURE

The result of the KSE-SECP tussle will determine the direction of the market. The standoff between the KSE and the SECP is a technical hitch and will provide some buying opportunities. FFBL's Board Meeting is scheduled for the 21st of July and the company would announce its half yearly results. Focus on fundamentally sound stocks with a bias towards Callmate Telips, NBP, POL, Packages and the Faujis. Fundamental Changes

The major developments this week were:

*Since SSGC is curtailing gas supply from 05-Jul-05 to 16-Jul-05 for annual maintenance of Bhit Gas Field, FFBL's management has decided to partially shut down its urea plant for the remaining period while the DAP unit will remain fully operational.

*Money supply growth was recorded at 16.98% for FY 04-05 as compared to 17.20% last year.

*According to a news report, State Bank of Pakistan (SBP) will release its monetary policy statement for 1HFY06 on July 21.

*Cement exports dropped by 1400 tpd to 3600 tpd during the first 10 days of FY06 owing to shortfall in domestic market, which offers better margins than exports.

*Pakistan State Oil awarded the tender for import of furnace oil (FO) to Fal Oil of Sharjah.

*The production and sales of autos recorded an increase of 28% and 32% respectively during FY04-05. *??Pakistan is to be given GSP status from January 2006.

*The offshore drilling at Pasni is continuing and rumors on Pakistan Petroleum Limited hitting a dry well at Pasni seem baseless.

 

 

*The government has decided to maintain urea prices at PkR475/bag by providing PkR4.7bn subsidy.

*The State Bank of Pakistan (SBP) has restricted commercial banks and DFIs the use of personal loans and credit lines for subscription of Initial Public Offerings (IPOs).

*Discussions held in New Delhi have given a green signal to the Pakistan-India-Iran gas pipeline and work is slated to commence in April 2006.

*As a result of record-high oil prices, Pakistan's oil import bill has increased by 31.25% (US$1.015bn) in FY05 to US$4.215bn against FY03 import bill of US$3.2bn.

*As a result of heavy rains and floods approximately 0.269mn acres of cotton crop in Punjab (4% of provincial cultivated crop area) have been destroyed.

*KSE announced that COT financing on seven stocks would continue without any caps, whereas COT financing would be extended to the remaining 20 additional stocks being traded at the futures counter at a later date. The SECP in its reply termed the decision taken by KSE as illegal and incapable of implementation.

NSS RATES TO GO HIGHER!

In a rising interest rates scenario, we expect rates on National Saving Scheme (NSS) to be revised upward shortly. Investors are currently getting a negative return on NSS owing to high inflation (9.33% in FY05). Currently, rate of return offered by Defense Saving Certificates (DSC's) and Behbood Saving Certificates is at 8.15% and 10.18% respectively. Dr Ashfaque Hassan Khan (Director Debt office) has also indicated that the Ministry of Finance (MoF) is planning to raise the rate of return on NSS, which will be effective from Jul 05. The MoF had linked the NSS rates with the cut-off yields on Pakistan Investment Bond (PIB) under the guidelines of International Monetary Fund. We believe that the Ministry is facing some difficulties in revising the NSS rates in the absence of PIB auction. In the last fiscal year, three PIB auctions were held and all of them were rejected owing to the high rates demanded by the primary dealer. In the recent budget, the government has raised the budget deficit target to 3.8% (from 3.2% in FY05), which will be financed through the privatization proceeds and international grants. Given the government's intention to finance its budget deficit through privatization proceeds, we expect the supply of the PIB is likely to remain limited in FY06 as well, keeping a check on PIB yields going forward.

PAKISTAN TEXTILES: A MIXED BAG!

Although we expect significant growth in the textile sector with the start of the new fiscal year, we do not anticipate this growth to be evenly distributed across the board. The removal of textile quotas from January 2005 has admittedly given rise to a huge opportunity set. The relevant question at this point is, who will rise to the occasion? The budget has enhanced capital expansion opportunities for the sector by scrapping sale tax from the entire chain of textile raw materials as well as marginalizing import duty on raw materials and textile machinery. However the new free trade order could potentially hurt the companies operating without the backing of established export market customers or with higher conversion costs by exposing them to competition from relatively cheaper textile producing countries such as Sri Lanka and Bangladesh. Considering these factors we maintain a liking for Nishat Mills and Nishat Chunian.

SBP TO MAINTAIN 'NEUTRAL' STANCE IN 1HFY06!

We expect SBP to continue following a 'neutral' monetary policy stance in 1HFY06, which will be aimed at combating inflation and maintaining output growth at its potential level. However, the language of the forthcoming monetary policy statement will remain the key to ascertain SBP's intention of changing the discount rate in the months to follow. During the first half of FY05, SBP has followed an expansionary monetary policy to stimulate growth. In an expansionary monetary regime, interest rates remain below the 'neutral' rate, which in turn fuel a tendency for credit and investment to undergo a cumulative expansion, boosting the economy and prices. However in 2HFY05, SBP changed its monetary stance to neutral from accommodative to combat inflation without affecting the growth potential of the economy. Cut-off yields on 6M paper has increased by 592bps in FY05. However, the impact of tightening has not been visible, so far. This intricate a question what a neutral rate would be?

INFLATION TRENDING DOWNWARDS....

Following s bumper wheat crop and government measures to allow import of essential food items, food inflation has eased off in the month of June-05. According to the data released by Federal Bureau of Statistics (FBS), inflation for the month of June was recorded at 8.74% (down from 9.84% in May-05). We believe that the high base effect also played a pivotal role in containing the inflation. Food inflation (carrying 40.32% weight in CPI) was recorded at 9.3% (down from 12.5% in May-05), followed by Housing Rent Index (HRI) 12.0%, and fuel inflation at 4.6%. However, transport inflation (13.6%) remains at higher end, owing to the increased public transport fares. In FY05, total headline CPI inflation was recorded at 9.28% (up from 4.57% in FY04). At the same time core inflation was recorded at 7.62% (up from 3.72% last year). In the wake of higher inflation, SBP changed its monetary stance from 'accommodative' to 'neutral' in 2HFY05 and since then has raised the 6M cut-off yield by 592bps. With the tightening in 6M T-bill rates, real interest rates have entered into the positive zone. This indicates that the short-term interest rates have peaked off.

KSE- TECHNICAL HITCH, FUNDAMENTAL ARE INTACT

While the standoff between KSE and SECP lingers on, we believe that this is a technical hitch and could potentially throw up some buying opportunities. We maintain our selective stock-picking stance where Pakistan Oilfield, National Bank of Pakistan, Callmate Telips, Fauji Fertilizer Company and Fauji Fertilizer Bin Qasim are our top picks. We firmly believe that the current standoff between the KSE and SECP will eventually be sorted out. In the latest development, the Board of Directors of the KSE announced that COT financing on seven stocks would continue without any caps, whereas COT financing would be extended to the remaining 20 additional stocks being traded at the futures counter at a later date. The SECP in its reply termed the decision taken by KSE as illegal and incapable of implementation. While the short-term performance of the market is likely to be subdued owing to the ongoing issues, we advise a selective stock picking strategy.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

35.45

35.36

-0.25%

Avg. Dly T/O (mn. shares)

183.19

163.27

-10.87%

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

320.91

286.00

-10.88%

No. of Trading Sessions

5

5

 

KSE 100 Index

7588.94

7535.81

-0.70%

KSE ALL Share Index

4969.93

4945.20

-0.50%