FUTURE DIRECTION OF EQUITIES MARKET
The KSE-100 index has the potential to continue its upward movement
By SHABBIR H. KAZMI
Aug 11 - 17, 2003
The KSE-100 has been registering constant upward movement and has crossed 4,000 level. At this juncture retail investors are getting a little skeptical about of the future direction of market. There is a group, which constantly make investor jittery by saying that the index gains are temporary and market can crash any time. As against this the overwhelming consent is that the index will continue its upward stride, certainly with some corrections.
Saying this, analysts never forget to remind the investors that currently market is highly overbought and is susceptible to gain or loose 100 points during a day. While the market continue to enjoy surplus liquidity, profit taking is also common. Despite increase in prices of volume leaders the dividend yields are still very attractive, at an average ranging from 6 to 10 per cent. At these level the funds are continue to flow into equities market.
After the hike in prices of volume leaders, second and third tier quality scrips succeeded in attracting the attention of retail investors. However, investors' interest still remain high in volume leaders. This mainly due to track record, earnings forecast, dividend paying ability and improved economic fundamentals for these companies. Market float and liquidity of specific scrips play key role in investment decision making. Second and third tier scrips despite offering relatively higher dividend yield often fail to attract investors, being considered illiquid.
As the index continue upward movement there are growing concern about bulging Badla volume. Higher Badla volume has the potential to plunge the market, in case of default by any major position holder. However, the chances remain low because of excessive liquidity. In case of default by any other investor, there are more to assume his/her position. The market remains vulnerable and prone to disaster at the hands of weak holders. Therefore, it is necessary that investors should adopt a more caution stance over the near term and should not chase the rally at this juncture.
It is true that improving fundamentals based on growth in economy are likely to lead to improved outlook for some sectors. However, there are certain scrips do not justify the price appreciation. It is only due to the persistent bull run in the market swaying the prices of almost every scrip and not because of the specific happening on the corporate and sector front. Some of these stocks have surged because of over optimism, i.e. cement and PSF. Though the long-term improvements have come, there are a lot of short-term threats and difficulties that need to be addressed. As the local investors often over react, the prices of these stocks may easily slip to the point from where these surged in a time span, shorter than one can even think of.
For a considerably long time the local equities market has suffered due to economic downturn. However, this time a protracted bull run has managed to remain firm. Though the basis and sustenance of inflated values still raises certain reservations, the bullish sentiments still prevail and expected to continue. Saying this some analysts warn that if sentiments become bearish the fall may not be orderly in nature. They also suggest profit taking in stocks where the fundamentals or the returns that the stock can offer does not justify the price surge.