LAHORE - Investors were kept on their toes throughout the week as an uncertain law and order situation coupled with sector specific regularity issues dictated sentiment at the KSE. Ambiguity on various fronts led KSE 100-index to close at the 17,964 level, down 1.2 per cent WoW. Low investor confidence also reflected in trading volumes which plunged by 27 per cent WoW to 236 million shares, however foreigners were still net buyers of $4.4 million this week.

Key macro highlights of the week included: forex reserves dipping by $380 million to $12.81b and T-bill cut-off yields inching up by 2-9bp.

For listed sectors and stocks, cement sales surged by 5 per cent YoY in Feb-2013, while ATRL and LOTPTA outperformed the market by 14.2 per cent and 4.9 per cent respectively in anticipation of positive regulatory changes. On the other hand, PTC underperformed the market by 9.8 per cent WoW on news of US based Federal Communication Commission’s order prohibiting the US telecom companies from paying above the Pre ICH rate ($0.02/min) for calls to Pakistan. Furqan Ayub, a capital market expert, said that Engro was a star performer at the close of the week as rumours abounded that the company could be getting LT gas at a much lower rate ($1.05-1.70/mmbtu) than earlier expected rate of $5/mmbtu.

An analyst from AHL stated that last day of the week started on an adverse development in telecom sector which sent all the telecom shares on a tailspin. The Federal Communication Commission of United States has given an order disabling the higher payments charged by LDI operator since October last year in response to an appeal filed by Vonage Holding Corp. This triggered selling in telecom sector where PTC and TELE underwent severe beating. Initial estimates suggest a minor impact of 2.7 per cent-3.2 per cent on the bottom-line of telecom operators but this development has shaken the investor confidence. On the flipside the ENGRO rushed to its upper circuit on the hope that the agreement is expected to be signed but this will remain a hope until officially announced. These major trend resulted in 28 points decline in KSE 100-index which closed at 17,964 points at the end of the day on Thursday.

Samar Iqbal, another noted expert, said that after a bull-run of 7 weeks, market close on Thursday 1.2 per cent down on weekly basis amid deteriorating law and order situation of the city. Also, fall in heavy weight OGDC and MCB share prices pushed index below 18,000 points mark. Volumes also fell by 21 per cent to Rs.7 billion. Further, adverse news flows in telecom sector about CCP hearing on 12th March and reduced termination call rate from US forced investors to trim their positions in the sector. While fresh buying was seen in refinery sector along with LOTPTA and Engro Corp amid hope that ECC may give favorable decisions.

Some activity was also witnessed in cement companies in anticipation of cement price increase. Going forward, law and order situation and unfolding political scenario may keep market volatile.

Experts said that despite all odds facing the economy i.e. severe power cuts, deteriorated law & order and fresh investments being at historic lows alongside political transition being underway, Pakistan equities are on the go, and so for sure amid undeterred corporate earnings growth of the listed sector.

We have taken our coverage sample of the KSE100 companies that represents over 70 per cent of the benchmark that recorded a massive growth 31 per cent on a QoQ basis (Oct-Dec12 over Jul-Sep012). Major sectors driving this QoQ earnings growth were Telecom, Fertilizer Cement despite heavyweights like E&P, OMC and Banking being key drags.

However, on a YoY basis, 1HFY13 as well as full-year CY12 (Banking, Chemical, Fertilizer), profits were marginally up by 1 per cent. Following is provided a table highlighting reasons underpinning corporate profitability growth in mentioned periods.