LAHORE - Signs of consolidation were evident during the week as investors adopted a cautious approach and booked profits in selective blue chip stocks. As a result, KSE-100 Index recorded a decline of 0.4 per cent WoW to close at 13,297 level. However, overall investor interest remained upbeat that can be vindicated by average daily volumes that surged by 12.7 percent WoW to 400mn shares. Foreigners also maintained their interest in the market obtaining shares worth US$1.6mn. Fertilizer sector remained under pressure due to reports of urea off take witnessing a decline in February. Moreover, FBR’s budgetary proposal to reduce corporate tax rate to 30 percent was another highlight during the week.

Amongst the major news flows, FBR has given a budgetary proposal to reduce the corporate tax rate to 30 per cent from 35 percent to improve overall compliance of the corporate sector. The new ordinance of whitening of stashed money, being implemented from next month, aimed at enhancing liquidity in the capital market by encouraging more foreign investment, besides disheartening speculative investment. Majority of financial market experts appreciated the government decision, saying the purpose of the scheme is to attract new investment to the stock market, which has seen activity decline gradually since 2009. The rate of CGT will be frozen at the existing 10 percent on securities held for six months and 8 percent on securities held for a year till June 2014.

ABM Securities chief executive Asif Baig Mirza said that under the new presidential ordinance, which is going to be implemented from April 1, there will be no inquiry of source if investment is made at KSE for up to 4 months and no tax will be applied on it. The new ordinance will allow investors to inject money without declaring the source of income till June 2014. There will be CVT of 0.01 percent on trading of shares from April 1 also. He said that the most significant is an assurance that no questions would be asked about the source of funds to be invested in stocks. He said that tax exemption was met with cheers and applause of the stock traders who rushed into equities lifting the volume of trade to a six-year high during the week

According to market sources, urea off take of local fertilizer manufacturers during February has witnessed a significant decline due to availability of subsidized imported urea. It is for this reason FFC, ENGRO, FFBL and FATIMA underperformed the market by 5 percent, 5.2 percent, 3.8 percent and 7.4 percent respectively.

HUBC’s long over due case against the levy of withholding tax by FBR on issuance of shares to the sponsors was dismissed by the Islamabad High Court. However, HUBC’s management has decided to file an appeal with the Supreme Court of Pakistan against the verdict. The stock also came under pressure and underperformed the market by 2.8 percent WoW.

Experts said that the KSE-100 Index hit a 4-year high on March 15, posting a return of 19 percent. This has encouraged us to look in history of KSE-100 which has provided exorbitant return of 201 percent since Jan 1, 2004. Some of the blue chip stocks in our JS Universe which have outperformed the KSE during that period include MCB, FFC and NBP. These stocks have outperformed the market by 554 percent, 329 percent and 108 percent, respectively. KSE has catered to both value and growth investors as they have witnessed phenomenal growth in their portfolio. Also to mention, ENGRO, MCB and OGDC are amongst those stocks which have been the fastest to recover after going ex-payout and have taken on an average 18-39 days.

The KSE has always been dominated by oil and banking companies, followed by fertilizers and cements. All these sectors enjoy a great deal of pricing power, which has helped them in keeping their earnings growth intact over the number of years. MCB, FFC, NBP, APL and OGDC are amongst the list of stocks that have outperformed the KSE-100 Index by 554 percent, 329 percent, 108 percent, 53 percent and 21 percent, respectively since Jan 1, 2004 along with their excellent payout history. On the other hand, there are many stocks that have recorded negative returns like PTC, HBL, KAPCO, HUBC and etc.