Karachi Stock Exchange (KSE) for the second consecutive year in 2003 was in upbeat mood and recorded a gain of 65.5 percent after restoration of democracy, improvement in Pak-India relations, lower interest rates, good corporate results, inflow of loans and aid from multilateral donor agencies and stringent measures taken by the management of local bourses.
During the year, the KSE achieved quite a few meaningful landmarks. It saw its highest-ever Index closing at 4604 on September 12, and its highest-ever market capitalisation of Rs 1,021 billion the same day.
The KSE's market capitalisation rose by Rs 356 billion, or 60 percent, during 2003, with 61 percent rise in dollar terms.
The average daily volume at KSE stood at 307 million shares in 2003, as compared to 166 million shares in 2002.
Even though the Index ended the year with yet another massive gain, in percentage terms it was not 'the best performing market in the world' as it was last year. Other markets, eg the Indian market, rose by 72 percent in 2003.
Tanvir Abid, head of research at Jahangir Siddiqui Capital Market, said that a massive rally heralded during 2003 because of liquidity influx, improving relations with India, strong economic performance and improved country image, particularly with the United States and key European countries.
The Federal Budget 2003-04 also provided impetus to the stock market by providing incentives to cement, textile and banking sectors and giving a vision of long-term growth.
The gains consolidated during the third quarter because of President Pervez Musharraf's visit to the USA and major European countries such as UK, Germany and France, ensuing improvement in Pakistan's external image.
The USA strongly praised Pakistan's role as a key ally in the war against terrorism and announced a $3 billion aid package.
Effective July 1, NSS rates were reduced in the 0.96-1.53 percent range, helping in channelling more funds towards the stock market.
The decline in NSS rates was restricted which ensued from the rebound in PIB yields.
Another major event during the year was the approval of Telecom sector deregulation policy.
Automobile sales during FY03 soared by 46 percent.
Fertiliser demand outlook was also extremely favourable ensuing from improved water supply and heavy rains.
On the regulatory front, a development was the State Bank of Pakistan's directive to all banks and development finance institutions (DFIs) to provide weekly details of their investment in shares and lending of funds for carryover or badla financing. This measure was a step towards the eventual introduction of margin financing.
Humiara Zaheer, research analyst at Capital One Equities, said that the year 2003 remained one of the best years for the stock market where new highs and lows were recorded.
Looking at the sectoral performance at the KSE, energy, cement and fertilisers remained in the limelight.
On average market capitalisation and average traded volume basis, Hubco, PTCL and PSO continued to dominate the KSE while FFC-Bin Qasim, and DG Khan Cement emerged as new market drivers and remained on centre stage throughout the year.
FFC-Bin Qasim (formerly FFC-Jordan) resumed its DAP production in September 2003 while improved financial performance of the company further contributed towards significant price appreciation and higher volumes. DG Khan Cement, after a long time, announced a cash dividend while its fundamentals also improved, thus making its stock more attractive to investors for investment purpose.
PSO remained in the limelight due to 'to and fro' news on its privatisation and that significantly moved the market sentiment.
Besides PSO, trading activity in the energy sector was heavily dominated by Hubco, Pakistan Oilfields. Cement sector also remained in the news during the outgoing year.
Humaira said that all cement scrips viz. Lucky, Maple Leaf, Fauji and Attock Cement remained the key attractions on account of positives arising from conversion of cement plants to coal firing system, financial restructuring of many cement units and fruitful steps taken by government to provide relief to the cement and construction sector.
Fertiliser sector remained poised during 2003. FFC and Engro and FFC-Bin Qasim continued to perform decently throughout the year.
Mohammad Sohail, head of research at Invescapital Securities, said that the stock market saw six stock public offerings during the year.
This was a 7-year high, i.e. the highest number of stock IPOs since 1996. "We believe that with liquidity flowing into the stock market, and a continuous bullish market, even this 7-year high of 6 IPOs doesn't seem that impressive.
However, during 2004, we foresee a good number of IPOs (maybe even in double digit), especially as the Privatisation Commission brings in Sui South, PPL, PIA, and Kapco to the market."
The highlight of the stock IPOs, however, has to be the largest domestic IPO of OGDC, amounting to Rs 6.9 billion.
It received a monumental response from investors who offered Rs 28.1 billion. "We believe that this may prompt the PC to take full advantage of current investable liquidity in the system."
In line with the exchanges' SECP's capital market reforms, 2003 also saw some initiatives on the risk management front.
The exchange introduced strict exposure rules for members. The phasing out of badla also continued.
Badla caps were introduced at KSE in order to restrict manipulation of rates. Also, from December 15, badla was restricted to only 30 scrips.
The exchange now plans to introduce margin financing some time in 2004, gradually eliminating badla.
Zubair Ellahi of Kausar Abbas Bhayani Securities said that the market witnessed wild swings--the index taking a dip to 2356 early this year and within seven months it was almost double.
The cumulative performance of two years is even better. The main driving factors during last two years were the improved macro economic environment, de-dollarization of economy, heavy remittances from abroad and low interest rates on fixed instruments.
Most of these factors are already built into current prices, so it is possible for the market to repeat it.
The market appears not far from the top of the pyramid. The only factor that can stretch the length of this pyramid is changed regional environment, otherwise new targets appear far-fetched.
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