LAHORE - The Karachi Stock Exchange closed a news flow-packed week on a bullish note where the benchmark KSE 100-index gained 3.3 per cent (593 points) with 39 per cent WoW higher average trading volumes of 210 million shares. While the news was not all good; the market took its lead from heightened visibility on upcoming elections and a likely end to the lingering political stalemate, as the caretaker cabinet was formed and the Election Commission started scrutiny of election candidates.
With 1Q2013 in the bag, buoyant result expectations – particularly for cement and fertilizers – also lifted market sentiments . Meanwhile with de-listing of Unilever Pakistan agreed upon at Rs15,000/sh, the consumer sector took its place in the sun this week, particularly EFOODS (13.8 per cent WoW). Sentiments were boosted early in the week by soft inflation numbers; where Mar-13 CPI came in at a 68-mth low of 6.57 per cent (9MFY13 CPI: 7.98 per cent). Also positive was: the government’s decision to hike OMC margins by 6-13 per cent; data release on Mar-13 cement sales, which rose 3 per cent YoY and 27 per cent MoM to an all-time monthly high of 3.33 million tons; and a reported 51 per cent YoY spike in Mar-13 urea sales. On the negative front: Competition Commission of Pakistan (CCP) slapped a massive Rs8.65b penalty on fertilizer giants FFC and ENGRO for ‘unreasonable’ urea price hikes; government admitted to slippage of its fiscal deficit target (6.5-8.0 per cent of GDP range being touted in media reports); and the caretaker Prime Minister ruled out his government signing onto an IMF program, leaving this crucial step to the new government.
As 1Q2013 draws to a close, experts review Pakistan banking sector numbers where aggregate deposits witnessed meager growth of 1 per cent QoQ (compared to 6 per cent QoQ during 4Q2012), while credit offtake remained flat QoQ during the same period at Rs3.9trn.
Likewise, adding to the sectors’ soft sequential profitability outlook, banking spreads continued their declining trend settling at 6.23 per cent in February 2013 (2-mth average coming in at 6.22 per cent).
Farrah Marwat, a stock market expert, believes narrowing spreads are likely to contribute to further contraction in NIMs till 2H2013 where she eyes the government to tighten its monetary policy. The Central Bank’s increased vigilance on containing banking spreads is an added concern on this front.
Samar Iqbal, Senior Manager Equity Sales, Topline Securities, stated that market gained by 3 per cent as investors confidence returned with nomination paper submission process over, lower than expected CPI and optimism about March quarter earnings. Across the board activity was witnessed with volume increasing by 83 per cent of Rs.7.77billion. Unilever buyback also brought interest in other food producers like Efoods, National Foods and Nestle Pakistan.
Experts said that Karachi’s benchmark KSE-100 gained 5.4 per cent or 931pts in the month of February 2013. This extends the recent bull-run to consecutive 9-months (Jun-12 to Feb-13) positive closing in which the market has rallied 32 per cent to reach $46b. This continuous positive monthly gain for 9-months has happened for the first time since inception of KSE-100 in1991 and surpasses previous best 8 consecutive months rally witnessed during Aug-05 to Mar-06, where the market cumulatively gained 60 per cent.
This heightened investors confidence is primarily attributed to significant reduction in the policy rate of 450bps since July, 2011 and active foreign buying ahead of crucial elections likely in May 2013. With index achieving our mid-year target of 18,000 slightly ahead of time, we re-iterate that index can make a new high by crossing 19,500 in calendar year 2013 as mentioned in our strategy note dated December 12, 2012. Major risk to our assessment comes from abrupt depreciation of PKR arising from weakness in the external account due to IMF repayment and domestic political noise.