LAHORE - Bullish sentiment prevailed at the local bourse throughout the week on the back of strong foreign buying. Attractive valuations kept investors’ mood fairly buoyant as the benchmark Index rose to its highest level since May 5, 2008. The KSE-100 gained 570 points (up 4.1 per cent WoW) to close at 14,612 points. Volumes also improved by 1.2 per cent WoW to 260m shares. Aggressive stance of foreigners was evident as they bought shares worth $33 million, while the local bourse also outperformed the regional markets by 3 per cent.
According to Pakistan Bureau of Statistics (PBS) Consumer price index (CPI) clocked in at 11.3 per cent for the month of April-12 as against 10.84 per cent last month. The cumulative CPI figure for July-April stood at 10.84 per cent. Hence full year inflation is expected to remain below the budgetary target of 12 per cent. Moreover, country’s foreign exchange reserves rose to $16.43b in the week ending April 27, from $16.42b the previous week.
According to Pakistan Cotton Ginners Association (PCGA), cotton arrivals as of April 30, 2012, stood at a record of 14.8m, up 26 per cent YoY. The impressive growth is on account of early sowing of BT cotton and increased cotton production in Punjab.
EFOODS, PTC and DGKC were amongst the out-performers this week. Earnings growth potential drove EFOODS to outperform the market by 16 per cent while PTC outperformed the market by 16 per cent due to reports related to a potential pricing arrangement among Long Distance International (LDI) operators. DGKC too outperformed the market by 7 per cent on expectations of sustainability in the company’s margin.
Experts said that the outgoing week saw huge foreign flows at Karachi bourse. The foreigners bought shares worth $49.4m and sold $16.2m, resulting in net buying of $33.2m which is highest weekly inflow in last 2 years.
As a result of this benchmark KSE 100 Index gained 4 per cent last week, with market capitalisation posted a gain of 4 per cent to reach $41b.
The foreign flows have increased after the gain tax ordinance approved by the President. Investors hope that billions of rupees will come to the market to document the money after the issuance of the ordinance.
Since beginning of April net buying of $54.4 has been seen at Pakistan market while total net buying in this calendar year has reached $71m far better than earlier expectations.
Pakistan market has been one of the best performing frontier markets of Asia after Vietnam and has posted a gain of 29 per cent ($27 per cent). In spite of this rise, Pakistan trades at FY13E PE of 6.0x with dividend yield of 9 per cent.
Experts said that with all top tiers Pakistan banks announcing their 1Q2012 results, the earnings growth remained impressive at 21 per cent. However, unlike last year where NII (Net Interest Income) remained the major earnings driver for the banks, this time growth in earnings mainly arise from sharp decline in provisions.
The major reason behind growth in earnings is sharp decline in provisions, especially on advances. During 1Q2012, total provisioning of 5 big banks stood at Rs1.4b compared to Rs7.8b last year, down significantly by 83 per cent. Aggressive provisioning and restricted lending opted by the banks during last year led to significant decline in provisioning on advances. Besides these two factors, improving paying capacity of borrowers after decline in interest rate also led to decline in provisions.
Moreover, impairment reversals of around Rs2b in few banks (ABL and NBP) also reduced overall provisions in 1Q2012. MCB Bank (MCB) recently held its analyst briefing recently to discuss its 1Q2012 result and future outlook of the bank. To recall, the bank posted PAT of Rs5.6b (diluted EPS: Rs6.14) in 1Q2012 compared to a PAT of Rs5.0b (diluted EPS: Rs5.46) in the corresponding period last year, a growth of 12 per cent YoY. Recent news reports suggest, HSBC is planning to divest from its Pakistan operations and MCB is among the 5 Banks interested in the deal. MCB has officially written to the SECP and SBP for approval of due diligence process, however, they are yet to receive any reply from the two authorities.