LAHORE The unchanged monetary policy by the State Bank kept the stock market investors depressed during the outgoing week. The KSE 100-share index closed at 11,372 points, declining by 276 points or 2.4 percent WoW. Average volumes remained dismally low at 37 million shares, though on a WoW basis, they improved by 8 percent. Cautious stance of the foreigners persisted as they offloaded shares worth $2.3 million. In comparison to the regional markets, the benchmark index underperformed by 7.2 percent. Experts said that weak investors sentiments prevailed at the local bourse as the killing of Pakistani forces by NATO strikes further strained an already complex US-Pak relationship. On the macro economic front, SBPs decision to keep the discount rate (DR) on hold also kept investors activity under check. Tension rose in an already difficult US-Pak relationship following the NATO strikes that killed Pakistani soldiers. USAs adamancy on not issuing an apology and Pakistans response of closing NATO supply routes and setting a deadline for US to vacate the Shamsi base has led to a diplomatic deadlock. Furqan Ayub, a stock market expert, said that contrary to the consensus market expectation of a 50bps cut in the DR, in its latest monetary policy statement (MPS), the SBP kept the policy rate unchanged for the next two months. MPS deprived the market of a much needed trigger with the SBP vindicating the decision by highlighting increase in macro economic risk. Furthermore, FBS released the CPI figures for Nov 2011, which rose by 10.19 percent from a year earlier. DGKC outperformed the market by 4.4 percent on the back of sustained high cement prices. Engro too outperformed the market by 1.3 percent (on a dividend adjusted basis) on restoration of gas supply to the company while FFC underperformed the benchmark index by 5.5 percent owing to cut in urea prices. Experts said that terrorism, bad governance, tense Pak-US relationship and economic slowdown are key factors contributing to low turnover at Karachi market. But the imposition of Capital Gain Tax (CGT) from July 2010 after a gap of almost 3 decades remains the main culprit. Investors fear that their wealth accumulated over last many years when tax was exempted may come under scrutiny and tax authorities will enquire them of the source of their funds. Another factor contributing to dwindling volumes is the absence of investor friendly derivative product. Because the cash market alone cannot develop in the absence of a vibrant futures, options and margin trading. Arabian Light Crude Oil prices have been trading in the higher bands since Feb11 and currently hover in the USD110-115/bbl band. Sensitivity of FY12E EPS to Crude Oil Price exhibits that POL is most levered against crude oil prices, while at the same time PPL provides the best hedge. Under current assumption of USD95/bbl for crude oil price estimates of FY12E EPS stand at Rs55.2/share, Rs29.9/share and Rs16.7/share for POL, PPL and OGDC respectively. If crude oil prices continue to hover in the $110-115/bbl range, estimates for FY12E EPS will be revised upwards by 13 percent, 10 percent and 8 percent for POL, OGDC and PPL respectively. In case crude oil prices continue to hover in $110-115/bbl range, FY12E PER would drop to 8.4x, 5.7x and 5.4x respectively. Hence POLs PER is most sensitive to oil prices and will therefore benefit from rising oil prices. Experts said that growth element should be the main focus for the investors. It is expected OGDC and POL to continue to outperform PPL and many other liquid scrip in other sectors. Rising oil price scenario and high rate of success in exploration and development activity bodes well for the sector. Experts continue to maintain Buy stance on POL and PPL while advise investors to hold exposure in OGDC on the back of significant upside risks related to Xin discovery which may lead to significant revision in our TP for the stock.