SALMAN ABDUHOO LAHORE - The equity market remained flat despite strong corporate results announcements, as all the major sectors including banks, oil & gas and telecom showed sluggish performance during the outgoing week. Similarly, auto sector too remained under pressure in the wake of federal cabinets approval of increasing the age limit of imported cars up to five years. The KSE 100 Index closed the week marginally higher at 12,462 level, showing a rise of 0.25 percent as compared to the last week. Average weekly traded volume halved WoW to stand at 117 million shares while net foreign inflows clocked in at $6.3 million for the week. The State Bank of Pakistan on Saturday decided to leave its key policy rate unchanged at 14 percent for the subsequent two months. The previous three consecutive rate rises sought to discourage government borrowing, but they proved ineffective in weaning Islamabad off State Bank funding. The SBP last raised the rate by 50 basis points to 14 percent on Nov. 29. Eight out of 10 analysts had expected the central bank to increase its key policy rate by at least 50 basis points to 14.5 percent to combat double-digit inflation, which is potentially an explosive political issue. SBP Governor Shahid Kardar said he did not expect any immediate easing of inflation. The market was keeping a close eye on the monetary policy announcement where 50bps hike would have proved to be a non-event while deviation from the forecast is likely to result in a short-term surprise and resultant market move. On a broader horizon, it is expected ongoing corporate result season to re-affirm Fertilizers, OMCs and Electricity sectors as the best. During the week, government also conducted a T-bill auction to borrow Rs185b from financial institutions; cut-off yields for all the tenors increased significantly. The outgoing week witnessed a number of corporate result announcements where a majority posted results that were in-line with expectations; the market thus followed its practice of profit-taking in the stocks right after the announcement. Petroleum product prices are likely to increase 12-13% MoM on the back of surging trend in global oil prices. However, any changes in pricing of petroleum products will have negligible impact on the OMCs as margins on MS, LDO, HSD, SKO and HOBC are fixed. We thus maintain Overweight stance on the sector. Federal Cabinet has accorded its approval to allow import of 5-year old vehicles into the country. This decision is expected to hurt the automobile sector and therefore, our UNDERWEIGHT stance is further reinforced. Experts reiterated stance that resumption of dominant trend required closing above 12,626 level with improved participation; on the other hand breaking below 12,450 level would highlight a retest of support around 12,350 12,230 levels. Result season kicked off this week with the earnings announcements of PPL, FFC, FFBL Lotpta, NRL, ATRL, APL and POL which were largely in line or above market expectations. The multilateral donors have reportedly halted budgetary support to Pakistan and have asked the government to obtain an LoC from the IMF. However, on a positive note, provisional tax collection figures for 7MFY11 stood at Rs747bn, up 12%YoY. Similarly, foreign reserves as of week ending Jan 22 stood at a fresh high of US$17.3bn. Sana Hanif, an analyst, said during the outgoing week, all key sectors including banks, oil & gas and telecom ended as underperformers. Autos too remained under pressure post Federal Cabinets approval of increasing the age limit of imported cars up to 5 years. Moreover, despite healthy results reported by two leading fertilizer makers and rise in DAP prices by Rs100 per bag announced by Engro, investors chose to book profits in key fertilizer stocks. The result announcement season kicked off with PPL posting higher than expected EPS of Rs13.9 for 1HFY11. Amongst other key announcements, FFBL, NRL and ATRL also posted higher than expected results, while Lotpta, FFC, APL and POL results were inline with the street expectations. Foreigners were net buyers of US$6.3mn and individuals were the major net sellers, worth $7.7 million.