Last week''s bullish run at Karachi Stock Exchange (KSE) revealed the true picture of the heavy weightage of Oil and Gas Development Co (OGDC), and somewhat of PTCL, where around 90 percent gains made in the index were contributed by these companies alone. The oil and gas sector scrips, viz OGDC, POL and PPL, as well as other darling stocks ie PSO and PTCL remained boisterous on ''privatisation play'' throughout the week at the bourses as KSE index alone gained 588 points in the last two days of the week after a correction of 198 points on Wednesday. OGDC & PTCL together contributed 486 points in these two days.
The market finally closed at 8,793.69 index points on Friday against previous week''s close of 8,285.40 points, with a surge of 508.29 points.
Average daily turnover amounted to 646 million shares (delineating 10 percent upside as against last week).
Telecommunications, OMCs, E&P companies and banks performed well. PTCL surged 12 percent on the announcement of date for short-listing of 10 interested parties out of 18.
OMCs moved up on the back of an increase in local oil prices, as PSO continued its upward drive despite extension in the EOIs date (PSO up 9 percent). E&P companies rose on the hike in international oil prices. (OGDC up 15.4 percent; POL up 4 percent; PPL up 8 percent). Banks were up on expectations of healthy corporate earnings due to rising interest rates (NBP up 8 percent; BoP up 20 percent).
According to an analyst from AKD Securities, during the week the entire show at the KSE-100 was run by the ''Top Five''--PSO, OGDC, PTCL, NBP, and Pak Oilfields. "The rally, based purely on potential privatisation, high international oil prices and better earnings expectations has made these scrips rather expensive on multiples, where our AKD Universe PE, including the Top Five, currently stands at 14.3x. Though surprisingly, excluding these 5 stocks at current prices, our AKD Universe is at a modest PE of 12x! This implies that market participants have ignored other valued scrips in the light of the potential rally in big-ticket items. While the privatisation related news flow will keep the activity going in the top five, we recommend serious investors to introduce diversification to their portfolios and focus on stocks that are still under-valued on multiples and offer greater upside as compared to the ''top five''."
During the week, rumours of another cement cartel rift spread in the market which brought most cement stocks in the negative zone on March 2, 2005. It is still unclear whether the issues have been solved or not.
However, traders believed this to have a minor impact on the cement sector, as such break-ups are already incorporated in valuations for the sector.
"In view of expected hike in urea prices, AKD remain bullish on fertiliser companies, where we believe that both Fauji Fertiliser and Fauji Fertiliser Bin Qasim would report double-digit growth in their profitability for FY05. Besides being relative under-performers (-7 percent and -12.58 percent respectively relative to KSE100 Index on 2-week basis), both companies traded at a PE of 11.58 and 12.4x on FY05E EPS of Rs 13.9 and Rs 2.6, respectively."
Recently unleashed growth stock, Indus Motors, is also among the top picks, where the company offers a decent yield dividend of 8 percent and trades at a PE of 5.5x.
"We reiterate our stance that at such high levels, the market is likely to experience huge volatility, where sector rotation and ''limited exposure'' in a well-diversified portfolio will provide sufficient cushion against potential jerks."
An analyst from KASB Equities believed that the market would follow its recent habit of outstanding gain during this week. Again, oil stocks would remain the focus for investors. However, the news related to NIT privatisation would trigger banking stocks. "Keeping in mind huge intra-day corrections, we are advising investors to keep their exposure at lower helm, to avoid huge intra-day correction. However, our fertiliser analyst believes that most of the fertiliser stocks have already reached their fair value.
The cement sector would remain quiet this week, but in a nutshell the market is likely to maintain its bull-run."
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