The stock market in the remaining part of February is expected to remain bullish and may breach 5000 points level following government plan to sell shares in state-run assets through bourses, improving Pak-India relations, corporate results from pivotal and entry of some foreign fund houses.
Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets, said the bullish drive of the market continued unabated for over the past two months with the KSE-100 index soaring by around 23 percent to 4900 points level.
The recent rally had been buoyed by an improvement on the domestic political front with respect to the LFO and improved relations with India.
"I feel that during February 2004 the market will comfortably cross the 5000-point level. Recent controversies over the nuclear scientists seem to have mostly settled", he said.
"We expect the commencement of Indo-Pakistan dialogue and corresponding improvement in the regional political climate to positively weigh on the market. Going forward, the buying euphoria at the market is likely to be sustained on the back of several forthcoming positive corporate announcements."
The upcoming financial results of PTCL, SNGPL, cement companies and the banking sector in particular would expect to be well received with investors.
Humaira Zaheer, head of research at Capital One Equities, said "We are quite optimistic on the future of the local stock market, especially pre-budget FY05 era that encompasses almost a 3-4 months time period.
We have been saying in the recent past and continue to reiterate our stance that the market is likely to cross the 5000 barrier in the very near term."
Furthermore, the 5500 target is very much achievable on account of positives arising from the improving economic indicators and expectations of good corporate results by the financial and energy sectors.
Humaira said that recently mushroomed 'IPO Investors' apart from the regular stock market clientele are now very much contributing towards the domestic stock markets as was recently seen in case of OGDC.
The presence of these IPO investors in the upcoming IPOs of Kapco and PPL will certainly play a vital role in the strengthening of the local bourses, while subscription of SSGC that is now opened for a common investor, is likely to boost the trading activity to a considerable extent.
During the past two months, KSE performed decently well in the face of all odds at the political front where the government was in a catch-22 situation on the LFO and nuclear issues.
As the LFO issue is now fully resolved and the clouds of ambiguity over the nuclear issue are apparently clear, this can be termed as good omen for the stock market.
Aqib Ellahi Mehboob, head of research at AKD Securities, said that the market marked a new high on Friday, the only trading day last week, with the KSE-100 index closing at 4888.68 points.
The market has been buoyed by strong money supply growth, where money supply was up 18.3 percent by middle of January 2004.
This has been augmented by better than expected results in key scrips like Fauji Fertiliser, Engro Chemical and Pakistan State Oil, and expectations of strong profitability growth in the commercial banking and cement sectors.
The momentum-driven rally is expected to continue until the SBP clearly adjusts its monetary policy towards tightening, which seems unlikely in February 2004.
Two critical sets of data need to be watched carefully in order to determine as closely as possible the possible inflexion point in monetary policy.
The first set of data pertains to inflation for the month of January 2004, where if the inflationary trend built up over the past few months continues the SBP may tighten within February.
The second set of data pertains to overall lending in the economy, where strong credit off-take will add to the SBP's comfort in terms of hiking rates.
PTCL's first half's earnings are anticipated to soar by around 27 percent resulting from growth in domestic connections and drop in financial charges.
Profitability of D.G. Khan Cement is projected to mark a nearly 200 percent jump to Rs 522 million compared to Rs 176 million last year.
The two key banking players--NBP and MCB--are also expected to show one-off extraordinary gains resulting from capital gains on their bond and equity portfolios. NBP and MCB's FY2003 net income are anticipated to respectively show 81 percent and 44 percent increases.
The Bank of Punjab is also noteworthy to focus, having sustainable profitability prospects ensuing from rapid expansion in advances. SNGPL's 1H/FY04 earnings are expected to surge by around 26 percent.
The next target for the market is 6000 points KSE-100 index level. "We feel that ongoing public offerings and continuing domestic liquidity are likely to fuel the market's rising path.
Moreover, despite the massive out-performance in recent years, from a regional perspective Pakistan market's valuations continue to be attractive.
This parameter becomes relevant as improved economic and political climate and increase in market depth is to once again place Pakistan on the map of foreign funds and investors.
In this regard, the government's Eurobond offering is to serve as a solid stepping stone.
The economic outlook going forward is to some extent lukewarm, while momentary spike in interest rates, inflation and peaking of remittances may cause some concern.
Nonetheless, overriding encouragement on the political front as well as robust agriculture, industry and manufacturing growth prospects should remain the primary focus of attention.
Mohammad Sohail, head of research at Invescapital Securities, said that the stock market is expected to remain news-driven in the month of February.
This is due to the fact that many companies will announce their results for the period ending December 2003.
Moreover, the secretary-level talks in Islamabad between Pakistan and India will keep investors active in the stock market amid hopes of further progress towards peaceful settlement to all issues.
And, finally, the IPO of Sui Southern Gas is likely to signal that the investors are still liquid. It is expected that by the third week of February the subscription figures will come into the market.
In case the corporate results are better than expectations and Pak-India talks end on a positive note then Index can touch the magic number 5000.
However, investors should continue to focus on selected value stocks with strong earnings potentials.
Looking forward, we do not see any major fallout on the political and economic fronts and we believe that the KSE-100 index will gradually drive the market towards new highs in the forthcoming months.
However, any external pressure on the issue of nuclear proliferation can afflict the positive sentiments at the local bourses.
Sajad Bhanji, research analyst from Arif Habib Securities, said that apart from selling shares to strategic investors the government's drive to offload part of government holding in State owned entities (SOEs) through local bourse would not only increase the depth of the local exchanges but would also benefit the common man.
The overwhelming response to the divestment of OGDC has already encouraged the PC to continue the divestment of SOEs through the stock exchanges.
The upcoming public offers of SOEs like Sui Southern Gas Company (SSGC), Pakistan International Airlines (PIA) and IPOs of Kot Adu Power and Pakistan Petroleum Limited (PPL) are likely witness enormous participation not only from institutions but also from retail investors.
POLITICAL FRONT: With softening of international stance on the nuclear proliferation where a number of international agencies and specially the US government have formally toned down the idea of Pakistan government involvement in the nuclear sales would ease ongoing tension.
In addition, confidence-building measures between India and Pakistan in the offing in coming days coupled with resolution of LFO related issues would give a sense of comfort to investors.
MARKET CAPITALISATION AT $20 BILLION MARK: With the successful listing of OGDC, the market capitalisation of Karachi Stock Exchange has already crossed $20 billion mark.
It is at this level that we expect entry of foreign funds into the local market. Valuation-wise, the KSE still has the potential for investment in a number of sectors in general and companies in particular.
CORPORATE RESULTS: The ongoing earning season, where in the coming days some large-cap companies are scheduled to announce there annual and biannual results, will also keep investors' interest intact.
Investors are likely to focus on corporate results announcement from the leading commercial banks that, we expect, would not only report all-time high earnings but are also likely to declare attractive dividends.
In addition, biannual results of companies like PTCL and especially cement manufacturers and fuel and energy companies would also keep the momentum smooth.
POSITIVE ECONOMIC INDICATORS: According to data released so far the government has not only successfully achieved the targets set in the previous budget but in many case has succeeded in surpassing the targets like revenue collection by CBR, higher exports, etc.
LOW INTEREST RATES SCENARIO IN THE COUNTRY: Prevailing low interest rates scenario are likely to guide companies to report attractive earnings in the coming years.
As a large number of companies have already rescheduled their long-term loans to reduce financial charges and are likely to post attractive earnings, we expect a major full-year impact on earnings this year and some increase in earnings in the comings years just from lower financial charges.
Comments
Comments are closed.