State Bank's assurance that it would maintain a stable monetary policy in the next months of current fiscal year helped the leading brokerage houses and institutions to play safe on the stock market with fresh buying activity in key scrips which boosted share prices during last week.
The week witnessed the initiation of formal trading of OGDC shares on Karachi Stock Exchange.
This helped the market capitalisation of KSE in crossing the $ 20 billion mark, which is widely regarded as a key minimum international benchmark.
Overall, the market continued its slow upward journey and settled at 4,764.12 on Friday.
This represented a 1.71 percent gain over the previous week's close of 4,684.04. Continued lack of significant news from the corporate and political sectors kept the movement of the market in a narrow-band throughout the week, with the greatest variation being one percent gain realised on Thursday.
This led to the closing of the index at a new all-time high of 4,769.31. Friday's session, however, gave back some of these gains and the index ended the week at a slightly lower level.
The State Bank of Pakistan (SBP) released the monetary policy statement for January-June 2004.
The report indicated that SBP intends to continue with the prevailing neutral stance while keeping a close eye on inflation.
The bank also auctioned 3- and 12-month T-bills worth Rs 60 billion on Wednesday.
The bank scrapped 81 percent of Rs 53 billion worth of bids received to leave the interest rates unchanged.
Asjad Yahya, research analyst from KASB Equities, said that after a long drought of news from the corporate sector, fresh week would start witnessing increased activity from this front.
Various companies are expected to report their quarterly earnings during the coming days.
"However, we do not expect this increase in activity to translate into an increase in the volatility of the index, since the market has already taken into account the expectations for these results. Thus, barring any surprises, the index is likely to remain range-bound.
Moreover, the fact that the recent bull-run has been fuelled by a run-up in second-tier stocks, which in turn has made first-tier stocks cheaper, should help in avoiding any severe correction in the index."
An analyst said that the badla market was once again giving clear warning signals that the market was in the hands of weak holders and it won't be long before they panic.
Sumira Dada from Elixir Securities said that the market has moved away from its fundamentals and only momentum players are stretching the index further.
"Take for example Sui South, which is trading at a multiple of 16, while PSO is trading at 14.5 as against the market profit earning (PE) of 9 multiple. Everyone is talking about the 5000 level but let's be honest, 5000 is not even 10 percent from these levels.
We would not want people buying the broader market for a mere 6 percent upside when the risk is so high. It's almost like being on the 17th floor of a 20-storey building and seeing only the 3 floors above you and not the 17 floors below you."
On Tuesday, a special COT announcement flashed on stock brokers' KATS screen when the market was almost at its intra-day low (down 35 points) and the market then steadily climbed up to close flat. In the interest of transparency it would have been much better if this decision had been taken before the market opened.
In case of Pakistan Oilfields, when it was trading at Rs 238 while the index was 4459 on December 29, 2003, the rumours for this scrip was that the company would be announcing an EPS of Rs 14 for 1HFY04 but the consensus of earnings expectations by analysts was not more than Rs 10.
"We think fundamentals have kicked in and brought the price of the stock down to Rs 220 when the index is trading around 4700."
On Wednesday, retail investors impatiently jumped into the market once again to make a quick
buck as soon as the index crossed the psychological level of 4700. The major risk of the market at this point in time was that it moved ahead of fundamentals.
Analysts felt that the rush of investors into stocks may raise danger of suffering a swift and damaging reversal after going too far, too fast. Engro Chemicals and Fauji Fertiliser seem to have some steam left as their annual results will be announced on the January 28 and 30, respectively.
Speculation on their earnings and dividend payout can push up the prices further. News on house finance and dams ignited interest in the cement sector once again.
Continuous high volumes with increasing prices of both Maple Leaf Cement and DG Khan Cement are reinforcing fundamental calls that both are still massively undervalued.
Sumira said that the sentiment is such that it is very difficult to sit in front of the terminal and not take any positions. But one should refrain from jumping into all sorts of stocks and, instead, one should buy stocks which have merit and have under-performed the market in the last few weeks.
Day traders should take positions with strict stop losses and make sure that they do not get stuck in speculative stocks--the ones which lost their value very sharply in the market correction of September 2003.
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