KSE hits 10-week low

Political uncertainties clubbed with the Sindh government and rumours that the government would tax share business in the forthcoming budget hampered any fresh investment.
The market was in roller-coaster mode yet again, as the KSE-100 Index swelled by 256 points in the first three trading sessions, and then plunged by 457 points in the next two to end the week at 10660 points.
Rumours regarding budget proposals also created negative sentiments in the market due to which equity prices lost significant ground. One of the rumours was regarding the imposition of capital gains tax on the stocks, which would have affected the liquidity in the market.
As if this wasn''t enough, the political situation is not really comfortable at this point in time. To add more difficulties, one more gossip was in the market regarding the introduction of CED on advances of the commercial banks. Finally, the stay order issued against the privatisation of the Pakistan Steel Mill by the Supreme Court of Pakistan also shattered the confidence of investors.
It was yet another bearish week at Pakistan''s equity market as key the KSE Index eroded 1.8 percent (201 points) to post a 10-week low closing of 10,660. Uncertainty regarding political set-up in Sindh and unconfirmed reports about taxes in upcoming Budget FY07 forced investors and punters to remain on the sideline.
Moreover, as the privatisation of the Pakistan Steel and the PTCL is now being challenged in the local courts, market players are worried about this also. On the other hand, positive news regarding the sell-off of state-owned mutual fund, NIT, and oil marketing giant, PSO, failed to provide the much needed support to local stocks.
The dullness of the market can also be judged from low volumes on the sock market. Last week, the average daily turnover was only 195 million shares. In fact, on Tuesday, the ready market volume hit a 9-month low of 123 million shares.
Ahsan Mehanti, CEO of Shezhzad Chamdia Securities Company, said that uncertainties linked to announcement of federal budget, substantial decline at the international bourses and swapping of May to June future contracts. "With share values reached attractive levels at banking, cement and oil counters, we foresee some recovery this week and expecting some fresh liquidity arriving from the mutual funds, endorsing some recovery", he added.
Farheen Saquib, research analyst from Alfalah Securities said last week, the market behaviour was quite directionless with activity remaining quite dull amidst low volumes. Though the index oscillated between positive and negative zone giving some intra-day opportunity to the jobbers, but overall most of the investors'' preferred to stay sidelined.
"We would advise a cautious stance on the market with buying in selective fundamentally strong scrips. Also the market investors are still reluctant due to the uncertainty about the upcoming budget, therefore, the proper direction of the market would be easier to predict after the FY07 Budget announcement", said Khalid Iqbal Siddiqui, head of research at Investment Capital Securities.
Historically speaking activity in the stock market do remain lifeless in the pre-budget sessions on account of uncertainty in the upcoming budget. At current levels sentiments do seem mixed amidst low volumes.
The jobbers should adopt a cautious strategy; however, selective cherry picking is advisable for long-term investors in good valued fundamental stocks.
Last week, MSCI AsiaxJP came down by 4.6 percent with MSCI EM Index declining by 4.5 percent amid rising interest rates. India''s BSE Sensex amid volatility also declined by 1 percent during the week. Though the role of foreign fund managers in Pakistan market is not as strong as in regional markets, there is concern that offshore funds that bought shares in Pakistan worth $355 million (net inflow) in the first 10 months of FY06 may also sale their holdings in Pakistan. And that is why for the last few weeks Pakistan stocks are also under pressure.