SALMAN ABDUHOO LAHORE Bullish activity continued ahead of earnings announcement on expectation of early launch of leverage products, as broad-based buying drove the market up by about 1.2 percent. With the result season around the corner, the market gained impetus in anticipation of good corporate results and attractive payouts, expert said. They stated that overall the rally was broad based, encompassing the banking, fertilizer and energy scrips, including MCB (up7.7 percent), UBL (up2.9 percent), FFC (up9.4 percent) and ENGRO (up9.0 percent). The benchmark 100 Index gained 145 points during the outgoing week to close at 12,534 level, with average daily volumes strengthening by 20 percent to 186 million shares. Aggressive foreign participation was observed with impressive buying worth $29.3mn. On the contrary, key macro data released, hinted that the recovery remained fragile, with inflation remaining high and trade deficit mounting. Though, the outgoing week witnessed the regional markets undergoing correction, declining by 0.8 percent, the local bourse continued its sturdy momentum with strong volumes. Market activity gained further momentum as the benchmark KSE100 closed at 12,533 the highest since June 13, 2008. Trading activity was equally encouraging as average daily traded volumes for KSE100 and All Share clocked in at 39 weeks high of 155mn and 186mn shares, respectively. Foreign Portfolio investment recorded a net inflow of USD29mn, up 2.5x WoW while domestic corporates and mutual funds also turned positive for the week. CPI declined to 15.46 percent for Dec10 compared to 15.5 percent recorded last month. This development is primarily attributable to the recent decline in food prices (food index down by 190bps MoM). In addition, the reversal of oil price increase also lent support in easing off inflation for the month. Furthermore, high oil prices kept investor interest intact in oil and gas exploration companies such as POL (up3.6 percent). Moreover, approval of the MTS product by the law ministry further boosted the sentiment of the investors, who now believe that the launch of the product may be imminent. Ahsan Mehanti, Director Arif Habib Investments Limited, said that bullish activity continued ahead of earnings announcement on expectation of early launch of leverage products, higher global commodity prices & expectation of no significant change policy rate in next monetary policy announcement. He said that institutional and foreign investors accumulated scrips across the board on strong valuations despite concerns for rising fiscal deficit and circular debt in Pakistan energy sector. Key economic data released turned out to be mixed overall, with the exception of remittances, that rose by 17 percent YoY to US$5.3bn (1HFY11) and the CPI inflation for Dec which was up 15.5 percent YoY, slightly below the market consensus of 16 percent. On the flipside, trade deficit rose to US$8.2bn (1HFY11), up 18.2 percent YoY along with LSM that contracted by 2.3 percent YoY. Foreigners again remained at the centre stage, with net investment of US$29.3mn this week. Banks on the other hand remained major sellers of equities worth US$25.4mn. Refinery production numbers for 1HFY11 were also released during the week and showed a decline of 9 percent on YoY basis to stand at 3.79mn tons compared to 4.16mn tons in the corresponding period last year. The decline can be attributed to closure at PARCO amid floods during 1QFY11. Experts however maintain an Underweight stance on the sector on the back of high regulatory risks faced by the refineries. 1HFY11 numbers show that automobile sales have recorded a growth of 11 percent YoY to 67,693 units from 61,023 units sold in the same period last year. Honda Atlas (HCAR) led the way with an increase of 21 percent YoY to 6,875 units sold during 1HFY11 followed by Pak Suzuki (PSMC) and Indus Motors (INDU) at 14 percent and 7 percent YoY respectively. With the result season approaching and foreign inflows getting stronger, equity market may continue to ignore the deteriorating macro environment. Thus while we eye KSE100 levels of 14,000 in 2011, we reiterate that aggressive exposure should only be built and maintained in dividend plays and robust business models i.e. FFC, POL, APL and Engro. Rallying relentlessly within a rising channel despite an extreme overbought condition; resistance on weekly chart looms at 12,625 and later at 12,774. Weekly price action formation is indicative of immediate support formed at 12,230.