At the closing day of the year, prices reached at almost the same level where they had peaked during first half of March last year.

Feb 27 - Mar 05, 2006

Equities at Lahore Stock Exchange (LSE) underwent a considerable recovery during the whole year despite the third crisis in the country's capital market history, which hit the market in March 17, 2005.

At the closing day of the year, prices reached at almost the same level where they had peaked during first half of March last year. However, following the emerging 'nasty' role of regulators - Securities and Exchange Commission of Pakistan (SECP) - the parliament had to put its feet down and clip the wings of the SECP by speedily introducing the market reforms, de-mutualisation, and merger.

Pakistan emerged as the best performing market with 58 per cent capitalization increase against Sri Lanka at 53 per cent and Japan only 46 per cent

Out of total 34 sectors, 27 improved their worth, seven lost and the rest stayed to their previous level during the whole year.

Market capitalization increased up to 58 per cent with history pushing Pakistan up to a highest level. Some of the analysts are of the view that present rally is driven by the foreign fund managers. They say, "The share price of state-owned enterprises on the privatization list seems to be going up because interested strategic investors are accumulating the shares. The analysts said that these investors had fairly good idea of the potential 'reference price', which is far higher than the presently quoted prices. Therefore, they continued to accumulate as many shares as they could, till the quoted price gets closer to the reference price, enabling them to enhance their bid but lower the average cost.

The analysts said it was also evident that the transactions were being made in millions of shares rather than in hundreds or thousands. They said that the market seemed completely in the grip of large investors, who had been making a fortune and also assuming huge risk. They seems to be following an old saying, 'higher the risk, higher the return'. With each bet they hit a jackpot, gives them the courage to enhance their stake in the next transaction. This tendency is pushing up the index to new highs and there seems to be no end.

Twenty-three transactions worth over Rs 250 billion have so far been conducted in a most transparent fashion in banking, energy, telecom and manufacturing sector.

The independent analysts say that the policy of offering shares of state-owned enterprises to the general public has also helped in broadening the small investors' base. Preference for small investors in public offerings has increased the inflow of funds to the equities market. One may say that most of the small investors sell their holding, which is bought by large investors ultimately. However, it is also true that handsome gains also encourage them to keep on submitting applications for the new offering and the funds remain in the equities market

Banking registered 200 percent increase in capitalization-sprees, increasing 13 percent spread commercial banks and insurance companies have also emerged as big institutional investors. In the past these entities used to invest heavily in the government securities as well as in various products offered under the National Savings Schemes. However, imposition of restriction on investment in these instruments and substantial cut in the rate of return has forced them to look for new options. The investment in blue chips offers them regular dividend income as well as opportunities to maximize capital gains. These institutions, enjoying ample liquidity, normally buy at dips and sell when the time is ripe. This is evident from huge investment portfolios maintained by these institutions. Their active participation has also helped contain the market volatility.

The independent analysts remarked that under the able guidance of former SBP Governor Dr. Ishrat Hussain, the State Bank of Pakistan launched the first generation reforms. The successful implementation gave the courage to undertake second generation reforms. The process has already started and the positive point is that all the players are actively participating to strengthen the financial system of the country. The regulatory framework is not being altered by the central bank unilaterally, rather the rules are being amended in full consultation, giving a sense of ownership and change is not being resisted.

Cement sector noted with 86 percent of capitalization by putting into operation an ambitious plan, investing over one billion dollar for five years for expanding production capacity at about eighty 80 per cent. The analysts predict that the annual increase in installed capacity would reach to 28.21 million tons in different phases by the year 2007-08, touching 35.59 million tons of the production in due course. There has already been an addition of 2.39 million tons to the total installed capacity during this fiscal.

Lucky Cement Ltd, having 4,200 tons per day (tpd) capacity plant, has recently undertaken the BMRE (Balancing, Modernization, Rehabilitation and Expansion) of the two existing production lines at Lakki Marwat that has increased its production capacity to 6,000 tpd of cement. Similarly, D G Cement Co Ltd, with an installed capacity of 6,700 tpd, has carried out the BMRE of existing facilities thereby enhancing its daily capacity to over 7,000 tons. The management of Bestway Cement Ltd is setting up a new unit of 3,800 tons per day, at Chakwal site. Attock Cement Ltd, with a 2,400-tpd plant, is setting up a second production line of 3,000 tons per day that will be operational in January 2007. Likewise, Dadabhoy Cement Industries Ltd will increase its installed capacity from present 1,800 tpd to 2,800 tpd, whereas Pioneer Cement Ltd implements its plan to raise production capacity from existing 2,000 tpd to 4,000 tons per day.

A new project namely Zaman Cement Ltd, a unit of 3,000 tpd capacity, has been established recently and is scheduled to commence production soon. Likewise, Galadary Cement of 2,000 tpd capacity is in advanced stage of installation and erection near Karachi. Mustehkam Cement, which is in the process of being handed over to private sector, would require major BMRE to become operational again, whereas the new management is also considering to enhance its installed capacity from present 1,000 tpd to 1,500 tpd in the first phase. Likewise, privatized Javedan Cement also plans for major up-gradation immediately.

The need for cement industry to undertake major capacity expansion is justified in view of strong market demands, both domestic and abroad and salutary fiscal and industrial policies of the government. Nonetheless, the world scenario presents a pessimistic picture for the future in this regard.