LAHORE - With the local bourse hovering around the all-time high levels and the year end reporting period just around the corner, investors adopted a cautious approach this week. Interest has shifted towards high yielding defensive stocks like HUBC, FFC and POL while trading activity is still tilted towards second and third tier stocks. Overall, KSE 100-index gained 78 points (+0.5%WoW) to close at 16,943, with volumes dipping 0.3pc WoW to 138m shares.

Furqan Ayyub, an expert from JS Capital, pointed out that foreign interest in the market also declined this week as foreigners were net sellers of $5.6m in the market. On the macro front, forex reserves were up by $169m to $13.4b while this week’s T-bill auction saw SBP rejecting all the bids. Furthermore, Pakistan also received the much awaited inflow of $688m on account of Coalition Support Fund (CSF). Other key highlight of the week was the release of fertilizer off-take number for November.

Experts said that rupee has lost its grounds against the greenback to the tune of 3pc during 2QTD. With this depreciation, FCCL is expected to incur an exchange loss of Rs 200mn, on its LIBOR based loan of USD66m. This hefty exchange loss is expected to push the financial cost up 15% QoQ to Rs 444m. Despite greater attrition in rupee value, exchange loss is expected to be lower 40pc YoY in 2QFY13 as FCCL has already retired USD15m since last year.

Experts from AHL, quoting the provisional dispatch figures, observed that Fauji Cement Company Limited (FCCL) appears all set to post a solid 85pc QoQ earnings growth on sturdy volumes (up 19pc in 2QFY13 to estimated 0.7m tons), mainly owing to a significant 25pc QoQ surge in domestic offtake, while exports are expected to remain flat QoQ. This healthy volume growth chained with firm cement and soft coal prices is paving its way to accumulate a fat bottomline growth of 85pc QoQ in 2QFY13. The impact of these positives is expected to be a bit diluted by a 3pc decline in rupee/dollar parity as it will inflate the finance cost due to exchange loss.

Though coal in the int’l market has been mapping a falling trajectory (down 17pc since Apr-12 when the fall started), however, its impact is expected to be visible in 2QFY13. This coupled with downwards-sticky cement prices (1pc jump QoQ) is expected to widen gross margins to 36pc in 2QFY13 (29pc in 1QFY13) while taking 1HFY13 gross margins to 33pc from a meager 17pc same period last year.

Experts said that in spite of economic issues, power shortages and security related concerns, Pakistan market remained one of the best performing in Asia in 2012. The benchmark KSE-100 gained 48pc in local currency and 37pc in US$ terms in the outgoing calendar year with only 9 trading sessions remaining. Major boost to Pakistan equities was provided by declining interest rates that sharply came down by 450bps in last 18 months (250bps in 2012). Resolution of Capital Gains Tax related issues, improved foreign flows in equities, rising consumerism, better corporate earnings and relative calmness on political scenario also supported the share prices.

The market worth of Karachi bourse is now Rs4.2tn, up 43pc in calendar year 2012. However, in US dollar terms the market cap is still down 42pc from its peak of $75b seen in April 18, 2012. Sharp decline in Pak rupee since 2008, absence of large listings and decent dividend payouts have restricted the growth in the overall market valuation. As a result, Pakistan’s market cap to GDP ratio of 20pc of Pakistan is one of the lowest in the region.

Average daily traded value remained Rs4.7b in 2012 compared to Rs3.5b in 2011, an improvement of 35%. In terms of shares, volumes have jumped substantially by 121pc in 2012 to 175m shares a day mainly due to investors’ interest in low price shares. In the absence of vibrant derivatives market and lack of new listings, in spite of bull-run the volumes are still lower than average daily of Rs30b witnessed in the period 2005-07.