Healthy corporate earnings and extension in COT failed to jack up the investors'' mood last week as some of them believed that rules pertaining futures market were too harsh and would create liquidity crunch for stock brokers, which might unleash selling pressure. The whole week KSE remained range-bound, with the Index closing below the 7000-point mark just once on Monday (April 25). The week was marked with the inflow of result announcements, which kept the Index moving.
However, on week-on-week basis the Index failed to record any major changes and closed with a small addition. The benchmark KSE-100 Index closed at 7,104.65 on Friday (April 29). Little activity was seen in May futures contract due to new strict futures market regulations. Badla market also remained liquid, with marginal change in badla rate.
After six consecutive dull weeks, the KSE Index closed on a positive note from previous week. The Index gained 3 points from last Thursday and closed at 7105 on Friday. Average weekly volume at KSE was 223 million shares with market capitalisation reaching Rs 2.0 trillion, or $33.7 billion, on the last day of the week.
Average daily futures volume was 17.8 percent of the ready market volume, in terms of shares, and 22.8 percent in value terms.
The quarterly earnings season is almost over and so far the earnings announcements are in line with analyst estimates, where most of the stocks have posted strong Y-o-Y growth in their respective bottom lines. However, the strong growth could not change the dull market sentiment, which had already incorporated the positive growth into the stock prices. To complement this, the lack of news flow in the short-term (no major result announcement post-Monday) will further slow down speculative/trading activity. An analyst from AKD Securities felt that the market, going forward, would move in a tighter band, where investors have to discriminate before investing. "Down the road, budget related news flow would start pouring in, where we feel that investors should watch out for sectors that could potentially perform with regards to any positive news expected from Budget FY06."
Star Performers-Positive Surprises: While almost all companies posted strong Y-o-Y growth, the major surprise came in the form of another stock dividend from Fauji. On the earnings side, MCB became the star performer, posting a surprise 138 percent growth in its bottom line (on the back of higher non-markup income). The earnings of OGDC, PTC, PSO, FFC, Engro and Hubco were in line with the forecast.
Disappointments, Negative Surprises: Although the market remained bullish on the auto sector over the long-term, the quarterly performance from the sector was a real disappointment for investors. Owing to the appreciation in JPY and hike in steel prices, both Indus Motors and Pak Suzuki Motors posted a decline of 10.8 percent and 24.1 percent, respectively, in the recently announced results. However, with the full impact of increase in the output prices more evident in the 2QCY04, AKD analyst expects the overall margins of automobile assemblers to improve.
Another disappointment came from Pakistan Petroleum Limited, which failed to meet market expectations. The company could only post 30 percent growth, primarily affected by a 10-day shutdown of Sui field.
An analyst from Atlas Investment Bank said that better-than-expected corporate earnings, coupled with extension of COT phase-out, failed to support the weak sentiment, resulting in volatility during the week.
The KSE seemed to be pessimistic in coming weeks as turnover has declined significantly due to dull activity witnessed in Futures contracts.
The SBP has also been raising T-Bills rates, by no less than 100 basis points, to offset the impact of continued inflation rates, which could hinder institutions from taking long-term positions in the stock market.
"For the current week, we remain cautious and expect a further downtrend because of (a) low trading volumes, (b) increased COT volumes, (c) less institutional activity, and (d) rising interest rates. However, we remain optimistic on the issue of bilateral relations with India where we expect further co-operation in trade and business in the coming weeks. We remain positive for the long-term on account of growth in the overall economy for FY05."
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