Post-budget news flow steers KSE activities

KSE Weekly Review LAHORE - In its first post budget trading session, the market stayed under pressure, ad the KSE-100 closed 25 points down due to status quo maintained over the CGT issue. However, the market later on gained some momentum with improved volumes led by some fundamentally positive developments announced in the budget including discontinuation of flood surcharge and absence of the much feared asset tax. The announcement of hydrocarbon discovery at Domail further boosted market sentiments. On a WoW basis, the trading volumes improved to 112m shares (up 9 percent) with the index gaining 141 points to close the week at 12,378 points level. Average trading value increased by 62 percent WoW to Rs4.7b highest in 12 weeks - as blue chips mainly dominated the activity. Foreigners turned net sellers of US$7mn from net buyers of US$7.1mn last week. With corporate tax rate being unchanged for banks in the budget, investors remained active throughout the week. The sector remained an out performer and gained 1.8 percent WoW. Construction and Materials also came in limelight on the back of reduction of FED on cement in the budget; however, profit taking was witnessed during the later part of the week. FFC also performed well (up 4 percent WoW) amid rumours of another round of price hike post the budget, however, its peer Engro was down 2 percent WoW due to investor uneasiness on gas supply issue and mounting debt. Lastly, a discovery at the Domail field with initial flow of 945bpd oil and 11mmcf gas led POL to gain 5 percent WoW. MTS investment stood at Rs226mn as of Jun 09, 2011 while average rate stood flat at 15.98 percent. Bull-Run led by PPL, did allow the benchmark to witness healthy gains during initial trade. Absence of follow-up support and unprecedented selling through both, off-shore and local channels in selected front line speculative stocks disallowed the benchmark to sustain above 12400. Cautious accumulation on dips did restrict the index from entering red zone. Experts said that Pakistans once vibrant and actively traded Karachi bourse that used to trade Rs40b a day in cash and single stock futures (Rs12b) on an average is on the verge of loosing its once famous slogan of most liquid market of Asia. This Rs40bn a day was 'average of four years that is during 2005 and 2008. This period also saw an all time high volume of Rs216bn a day (US$3.7bn) on March 9, 2005. And the ground reality is that if recent trend of volumes continue it will take 6-months for brokers, exchanges, investors etc to see these volumes to surpass the record volume seen on one day on March 9, 2005. That is the revenue earned by the exchanges, brokers, government; etc on that particular day is now equal to revenue earned in 6 months. Interestingly the volume at Karachi market these days are as low as what investors used to trade when there was a three and a half month price floor in 2008. Though price discovery was an issue at the end of 2008 when regulators placed an infamous market floor, volumes in the off market were close to what it is now. That shows the depressing state through which local bourses are passing these days. In last 3 days average traded value at KSE was Rs1.7bn (in cash, off and derivatives market) compared to average volume of approx. Rs1bn at the time when market was practically closed down in Sep-Nov 2008 period. In terms of turnover velocity (volume divided by market cap) which is a better and relative measure of market depth, Pakistans turnover velocity last month was 22 percent compared to an average of Asian markets of more than 100 percent. Pakistans turnover velocity in 2003 was at record 490 percent compared to Asian average of 80 percent making it one of the most actively traded markets at that time. These plummeting activities at capital markets have serious implications for capital formation and governments objective to raise long term funds through the capital markets.

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