The stock market for the fourth consecutive week closed on a negative note which was triggered by margin financing announcement during previous week and continued last week also. However, support came from financial institutions but failed to boot out the bears.
On Wednesday (Sep 15), the KSE-100 index closed at six-month low at 4997 points. However, market recovered marginally later in the week, due to reports of Prime Minister's meeting with stock market representatives to resolve the CVT issue.
During the week, the KSE-100 index declined by 126 points or 2.4 percent and closed at 5046 on the Friday (Sep. 17). This was the fourth consecutive negative weekly closing, during which KSE-100 index has come down by 6.7 percent. According to an analyst from the AKD Securities, the KSE-100 Index has remained below its 200-day moving average (current 200-day moving average stands at 5087 points).
The index had already broken all the other short-term moving averages (20-day, 40-day and 140-day) on its southern journey, implying that short-term pressure was already in place. However, the downside breakout of 200-day moving average (considered as a long-term direction indicator) should be considered as a significant negative development.
Hence, technically speaking, the market is in the grip of a bear spell. However, the correction has also impacted fundamentally strong stocks, in turn opening up attractive opportunities for investors to cherry pick stocks. Our top picks fundamentally are PTC (PTC-PkR39.15), PSO (PSO-PkR242.50), Hubco (HUBC-PkR32.05), FFC (FFC-PkR106.00) and SSGC (SSGC-PkR27.25). The immediate support level for the market is 4,788 points, implying a downside potential of 5.1 percent. After which, the next support level stands at 4,677 points. On the upside, the first resistance level is 5,087 (200-day moving average) followed by 5,263 points. The KSE-100 Index is down more than 10 percent from its peak on April 19, 2004 (5620.66 points).
As stated above the repercussions of the 10 percent plus decline have been felt across the board, making fundamentally strong stocks attractive for medium to long-term investment strategy. Investors should remember that the positive macro economic outlook is intact. Tightening of monetary policy is being implemented gradually so that it does not hurt economic growth but rather provides the much needed balancing stimulus.
Furthermore, the above stocks have lower or negligible financial leverage, thus rising interest rates will have little impact on their bottom lines. Attock Cement, Chakwal Cement, Cherat Cement, Hub Power Co, and Shell Pakistan were the major gainers while Pakistan Refinery, PNSC, Jahangir Siddiqui & Co, Bank Al-Habib and Kohinoor Textile were major losers at the KSE.
An analyst from KASB Equities said that during the week, the KSE-100 index went below the 5000 mark twice. Volumes showed a slight recovery. Average daily volumes stood at 185 million shares, 17 percent up from 158 million shares during last week.
The week also saw results announced by Cherat Cement, DG Khan Cement and Indus Motors, all of whom failed to create any positive impact in the market. Rumours on removal of capital value tax (CVT) on shares also continued, with investors remaining hopeful of a positive outcome from the meeting between PM Shaukat Aziz and a delegation of brokers on Friday. However, investors reacted negatively when the meeting ended without any announcement on removal of CVT.
The market continued its downtrend throughout the week. While individual stock prices looked attractive on absolute valuation multiples, investor interest was not very visible. KASB was of the opinion that the market was likely to see some support around the 5000 points index level.
The market heavyweight, OGDC, is also scheduled to announce its results in the coming week which, if positive, should provide some support to the market. A leading trader said: "As for the coming week, we do not see any good news for the market pertaining to the tax issue as dialogue between the stock exchange members and the Prime Minister ended in vain and no concrete statement was issued in this regard.
However, it is hoped that the second meeting, which would be scheduled somewhere next week, would bring some sigh of relief to the stock market participants. For the following week, we see a gradual decline in the badla investment and volumes while the COT rate would hover around its current level."
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