LAHORE Strong institutional support in oversold blue chips including oil, banks and fertilizer scrips, drove the bullish activity at the local bourses amidst earnings announcement session during the outgoing week, setting aside the global economic turmoil totally. Market experts said that despite concerns over rising local commodity prices after massive flooding in Sindh, tension Pak-US relations following the allegations on ISI for supporting Haqqani network, the market closed the week at 11,607 level, up 253 points. Average daily volumes increased by 45 percent to 72 million shares, while foreigners remained net buyers of $1.7 million. According to analysts, concerns regarding European debt crisis and the US economy coupled with gloomy economic outlook statements by the heads of IMF, World Bank and Fed took its toll on global stocks and commodities market during the week. Moreover, these global economic woes also resulted in confused local investor sentiments. On the macro front, CPI in Aug was recorded at 11.56 percent that is below consensus estimates but the divergence is mainly attributable to the change in base year from FY01 to FY08. Additionally, MPS will be announced on Oct 8th in which market is pricing a DR cut of 100bps. Naveed Tehsin of JS Securities observed that the fall in CPI to 11.56 percentYoY is mainly attributable to change in base year from FY01 to FY08. The actual impact of the base year change can be observed by the fact that July 2011 number was revised down from 13.8 percentYoY to 12.4 percentYoY. Furthermore, with reduction in CPI, discount rate cut looks eminent. The government has also decided to settle the power sector circular debt issue, including all accrued mark-up, and has asked banks to subscribe to PIBs against all loans and power related term certificates. Ahsan Mehanti, Director of Arif Habib Investments, said that the stocks finished higher this week after August new base CPI inflation stood at 11.56 percentYoY. Hopes for market favourable policy announcement by the SBP early next month changed the sentiments. Circular debt concerns eased in Pakistan energy sector on government agreement with IPPs for release of dues and Supreme Court hearings on security situation in Karachi eased political concerns. He said that the some sessions remained volatile this week on major fall in global stocks and commodities on US Fed statement warning a significant downside risk to the US economy and Moody's downgrade of three US banks. Investors awaited outcome of finance minister's meeting with World Bank and IMF to discuss economic outlook despite strong valuations on rising local cement, fertilizer prices and t-bill yields cuts by SBP after favourable CPI inflation indicators. As per SBP, current account deficit came in at $189 millin in 2MFY12 down from $1.016 billion in the corresponding period last year. The disciplined C/A statistics and decent reserve size has boosted Ministry of Finances confidence for FY12 outlook and hence the government has decided to end IMF Stand By Agreement Program for now. Currently, the US dollar is gaining strength in the global market, however, the rupee has depreciated by only 1.8 percent in FY12 whereas Indian Rupee, Singaporean Dollar and Euro has weakened by 9.9 percent, 4.9 percent & 6.5 percent respectively. Continuous fall in the global equity and commodity markets also kept local bourse under selling pressure during few days of the week. Falling international oil prices kept local oil stocks like OGDC, POL and PPL under selling pressure. Low cap fertilizer stocks like Fatima and FFBL remained in the limelight in anticipation of better quarterly earnings and higher payouts. Inflation for Aug11 clocked in at 11.56 percent on the back of 1) a higher base effect and 2) change in consumer price index (CPI) composition. Preliminary analysis reveals that inflation for FY12 can potentially clock in the vicinity of 11 percent. On the flip side, the govt which was previously restricted by IMF to borrow from the central bank may opt for the same. Consequent monetization would result in higher inflation and trickle down into rupee depreciation by 7 percent against earlier projected 5 percent during FY12. An aggressive monetary easing stance would although provide a reason to celebrate for equity investors; we are of the view that it should also be accompanied by structural reforms for long term economic stability and growth. Experts valuations for companies incorporate PIB yield as risk free rate presently taken at 13.5 percent. Each 50bps decline in 10yr PIB yield leads to a 3-5 percent upward revision in target prices for companies, where banking sector will see the highest revision in valuations while leveraged companies will witness the highest change in profitability forecasts.