Investor sentiments remained buoyant throughout the week and the bullish momentum at the local bourse continued with the KSE 100-index closing the week at the 22,359 level, up 2.5 per cent WoW. The newly elected government took charge with Nawaz Sharif as the new Prime Minister of Pakistan. On the macro front, inflation figures were released for May 2013, where CPI clocked in at 5.1 per cent i.e. a 9-year low. Other key highlights during the week included cement sales figures released for May, showing a decline of 1 per cent YoY and 8 per cent MoM, news that Lucky Cement will begin construction of its Congo plant next month, National Electric Power Regulatory Authority (NEPRA) approved upfront tariff for coal based power plants, and budgetary proposal to tax inter-corporate dividend at 35 per cent.

Naveed Tehsin, an analyst, observed after oath taking of new government coupled with continuous heavy foreign inflows market continued its bull-run. KSE 100-index crossed yet another milestone of 22,000 points mark after closing above 22,300. Nine year low CPI also supported the bull sentiment as investors are expecting monetary easing in coming months.

Samar Iqbal, another expert, said that index heavyweight MCB led the rally again with support from PSO and cement stocks. Volumes also increased by 16 per cent to Rs12.9 billion. BOP Right and BOP remained amongst the most active scrips as their cumulative average volume remained 105 million shares. However, fertilizer sector saw some profit-taking amid cut in gas supply from SNGPL network. Going forward, investors will eye news regarding circular debt resolution from the new elected Government and monetary policy.

According to experts, Pakistan’s benchmark index has posted a return of 15 per cent in May, 2013 as investors cheered the change in political setup after the historic elections in which one party got the majority. Average daily traded volume stood at Rs10.1 billion ($102.8 million) during the month, up 96 per cent against the 12 month per day average of Rs5.2 billion ($52.4 million), highest since October, 2009. But interestingly average volume in shares stood at abnormal 340.7 million a day in May mainly supported by extraordinary activity in low price mid caps at the end of the outgoing month.

They said the selected stocks have posted extraordinary gains coupled with improving volumes. They once again reiterate that low price shares do not necessarily mean attractive values and they feel that investors should carefully analyze the fundamentals of these companies before they buy these shares.

Liquidity drives the market in the short run. And this is exactly the reason of this crazy run in low price scrips. Over the past 16 months (Jan 2012-Apr 2013), Pakistan equities have provided a gain of more than 68 per cent, significantly increasing the liquidity position of the investors with no major listing and right shares. This level of liquidity was further augmented as transactions of Unilever Pakistan voluntary delisting (Rs50 billion) and AKBL public tender offer (Rs4.2 billion) pumped additional liquidity into the market.

Furthermore, many people believe that the incoming government will tackle the circular debt issue head on. In this regard, strong vibes regarding onetime payment of Rs500 billion to resolve the issue have been coming in from top political level. In order to seize the opportunity and to make exceptional gains punters have pushed up trading volumes of some small power companies such as Southern Electric (SEPCOL) and Japan Power (JPGL) as evident from the accompanied table.

SEPCOL (return of 199 per cent) was one of top performers amongst 13 scrips that was selected on the basis of abnormal activity witnessed in them in last few weeks. This was followed by JPGL (136 per cent return) and Dadabhoy Cement (with 101 per cent return). Another interesting finding is that 3 companies out of the 13 in mentioned list belong to a single group where speculation is taking place on the likely debt reprofiling by banks’ consortium. Bank of Punjab and its Right shares are performing amid speculation that new government will turnaround the bank through debt restructuring and injection of more funds.