LAHORE - The equity market continued with its corrective movement with the result season in full swing. However, investors opted for some profit taking after International Monetary Fund’s (IMF) report depicted a bleak outlook on Pakistan’s economy. Expert said that some result announcements being below consensus expectations and ambiguity on the upcoming monetary stance impacted negatively. Further uncertainty came on the back of the standoff between the judiciary and the government on Prime Minister’s contempt of court charge. Nonetheless, KSE 100 Index managed to gain 249 points (up 2.1 percent WoW) to close at 12,232 level. Market activity improved as average volumes surged by 85 percent WoW to 170mn shares. Foreigners maintained their interest in the market obtaining shares worth US$5.9mn, while the market also outperformed the regional markets by 1.4 percent.

In its assessment report on Pakistan, IMF was critical of State Bank of Pakistan’s (SBP) accommodative monetary policy stance and insisted on more exchange rate flexibility. Moreover, IMF highlighted the fiscal vulnerabilities and believes that the government’s fiscal deficit target of 4.7 percent of GDP is highly optimistic and projects the deficit to reach 7 percent of GDP. Additionally, the Fund expects economy to grow at 3.4 percent and CPI inflation to average at 12 percent in the current fiscal year. The two main results announced this week were HUBC and PSO. HUBC’s earnings were above street estimates as the company posted an EPS of Rs2.59 in 1HFY12, up 5 percent YoY. Along with the result, the company announced an interim cash dividend of Rs3/share. Conversely, PSO’s 1HFY12 result was below expectations, reporting an EPS of Rs26.72, down 36 percent YoY. Also, the company did not announce any cash payout.

Pakistan State Oil booked profits of Rs4.6bn (EPS of Rs26.72) as against earnings of Rs7.1bn (EPS of Rs41.58) in 1HFY11, down 36 percent YoY. The decline in profitability is mainly due to Deferred Tax Asset (DTA) write off reversal last year. Hence, on a recurring basis, we estimate earnings are marginally up by 1 percent YoY. In 2Q alone, earnings stood at Rs12.22/share (down 16 percent QoQ), lower than market consensus. The key reasons for lower than expected earnings appear 1) higher than expected exchange losses (operating costs up 33 percentQoQ) and 2) lower other income i.e. interest income received from power companies. Also, the company did not announce any cash payout along with the result. Experts said that index continued with its corrective movement and closed at 12,213 level, down 50 points on last day of the week. Volumes remained low at 139mn shares versus 243mn shares recorded previously. The current formation of lower high and lower low suggests that the correction is likely to continue. Moreover, the RSI and the Stochastic Oscillator have generated a sell signal supporting the above view. Meanwhile, the 30-DMA is likely to cut the 90-DMA from below which is a positive sign. We suggest investors to wait for dips till the indicators cool down. The support and resistance are present at 12,130 and 12,297 levels, respectively.

Experts said that market remained ranged bound as investors remained cautious due to monetary policy and contempt case hearing on Monday. The long awaited news of issue of payment on account of circular debt also failed to boost the sentiments. Small cap stocks remained volume leader as FCCL led the volume followed by JSCL and Fatima with volumes declined to Rs. 2.9bn

The Board of Directors of Allied Bank Limited (ABL) and Kot Addu Power Company (KAPCO) are scheduled to announce their respective 2011 and 1HFY12 results on February 14 and 15, 2012. It is expected ABL to post an unconsolidated PAT of Rs10.2bn (EPS: Rs11.87), up 24 percent YoY, mainly driven by higher NII and lower provisions. The bank is also anticipated to announce a final cash dividend of Rs2 per share. KAPCO is expected to announce profits of Rs2.7bn (EPS: Rs3.07) in 1HFY12, down 30 percent YoY. Lower utilization level because of higher maintenance is likely to be the major reason for the decline in earnings. It is expected KAPCO to announce a first interim dividend of Rs3 per share.

The higher Operation and Maintenance (O&M) costs amid overhauls and upgrading of gas turbines together with lower fuel supply is likely to result in earnings to be on the lower side for 2QFY12. However, completion of the project will improve the bottom line of the company going forward.