LAHORE The equity market continued to remain bullish on the back of healthy foreign inflows, which provided much needed support to the under pressure stock, setting aside the all negative news flow during the out going week, as net foreign flows settled at $23 million for the week compared to $12 million of the last week, up by 84 percent. The week concluded with KSE 100 closing at 11,406 level, up by 261 points or 2.2 percent. Trading activity picked up to average weekly volumes of 150 million compared to 119 million recorded in last week. Experts said the week began with the announcement of a third consecutive 50bps hike in the discount rate, which the investors did not react negatively, as they had been anticipating as such. This was evident from the pick up in volumes from 90 million shares on Monday (29 Nov) to 165 million shares traded Tuesday. The T-bill yields in the auction held on Wednesday rose as well. Sentiments remained bullish despite profit taking witnessed post an unfavourable revision in the pricing mechanism for OMCs and refineries. The KSE-100 ended Friday at 11,407 level, gaining 2.3 percent WoW, highest closing since 10 Jul 2008, with average daily volumes of 150 million, up 27 percent WoW. Following the interest rate hike, T-bill cut-off yields increased by 30bps on average. Shifting provincial borrowing form SBP to commercial banks may continue to put upward pressure on market yields. However, improving liquidity position is projected to avoid major upward revision in market yields in the short term. Analysts expect credit off-take to grow during 4QCY10 amid seasonal credit demand for cotton procurement. Considering it as key determinant for banks growth, we reiterate our stance of better asset quality and profitability for banking sector for 4QCY10 and recommend Add stance for MCB and UBL. DAP recorded phenomenal growth of 170 percent YoY (371k tons) during the month of Oct10, while Urea sales remained stable at 427k tons. FFBL continues to be our pick from the sector given our anticipation of a robust 4QCY10 offtake scenario. The stock currently provides CY10E dividend yield of 13.5 percent from current levels. The SBP announced its 3rd MPS for FY11, where it opted for a third consecutive hike in the DR raising it to 14 percent (up 50bps). The central bank in its policy review has attributed the decision to deal with the high level of government borrowing and rising inflationary pressures. The market did not react negatively as it had been expecting it and had already priced in the impact. Resultantly, in the first auction post the MPS announcement, yields on treasury bills rose by an average of 19-37bps to 13.16 percent for 3M, 13.39 percent for 6M and 13.67 percent for 12M bills. Angela Memon, an analyst, said that the turnover tax rates reduction to 0.5 percent for the downstream sector was finally notified officially this week, clearing confusion that had marred investor thoughts since the Budget FY11. Later, OGRAs revising the pricing mechanism for refineries and OMCs - which would negatively impact their margins - created selling pressure in related scrips. Among the heavy weights Fertilizers gained on better October offtake with FFBL outperforming the market by 1.74 percent & Engro by 0.65 percent. Foreigners were net buyers of US$23 million, while banks offloaded shares worth US$9.8 million. Healthy foreign investment is expected to continue the excitement and help market sustain current levels while the year end factor is to keep local punters active in the market. We maintain POL, APL, FFBL and LUCK as our High Conviction Investment Ideas. Activity ahead is likely to remain volatile while levels at 11,343 11,260 are expected to support any adverse move. Just incase, be cautious of a gap down opening on Monday.