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The introduction of Continuous Funding System (CFS) is the booster for Karachi Stock Exchange, gaining 12 percent on back of healthy gains in National Bank of Pakistan and MCB, unlike OGDC in March where index touched the all-time high level.
Since the introduction of CFS on August 22, the benchmark 100-Index has gained 874 points, or 12 percent. Introduction of CFS played a pivotal role in this bull-run, while impact of excellent corporate results could not be ruled out.
Unlike the March rally, where the Index remained biased towards top tier scrip OGDC, which alone contributed two-thirds to the Index gain, the important feature of the current rally is that it is fairly broad-based and is primarily being driven by middle and small cap stocks.
According to a report of Jahangir Siddiqui Capital Markets, in the overall increase of 874 points, significant contribution was made by National Bank and MCB as they collectively added 146 points, or 17 percent, to the Index rise. Having an Index weightage of 4 percent, NBP alone added 91 points (10 percent). With a 34 percent jump in price, NBP outperformed the market by a sizeable margin. MCB portrayed even better performance than NBP and contributed 55 points to the Index with only 2 percent weightage.
In absolute terms, MCB share price rallied Rs 34, or 37 percent, in this bull-run and thereby heavily outperformed the market as well.
Both these banks showed excellent performance in their 1H2005 results with over 100 percent growth in their profitability. JS Research has remained bullish on the banking sector. "We gave Buy call on MCB when it was at Rs 87, just before the start of this rally. National Bank has been the top pick of JS Research."
OGDC, the most heavyweight company in the index, remained the top contributor by adding 153 points (17 percent) in this rally.
However, this time around the contribution of OGDC is fairly lower than what was seen in March rally, where it was responsible for over two-thirds of the Index rise. In absolute terms, the scrip actually under-performed the market as its share has surged by 8 percent to close at Rs 113.5 on Friday versus KSE Index rise of 12 percent.
Presently, keeping share prices of other 99 scrips as constant, a Re 1 (0.9 percent) change in OGDC price caused the Index to shuffle by 17-18 points (0.22 percent).
With an Index weightage of 12 percent, PTCL is the second heavily weighted company in the Index. In this rally, PTCL could not find its place in the list of top 15 Index contributors and only added 13 points, or 2 percent, thereby under-performed the market by 7 percent.
Besides additional liquidity of Rs 13 billion through CFS, above expected corporate profits for the period ending June 2005 also helped in the build-up of this rally. Especially, the profitability growth of the commercial banks has forced investors to take large positions in banks. Listed banks profits for 6 months of 2005 jumped by 93 percent, and that was why in last 7 weeks banking sector capitalization increased by 20 percent, beating the Index by 6 percent. Similarly, mounting global oil prices also supported the market sentiment since 43 percent of KSE Index companies benefited from higher oil prices.

Copyright Business Recorder, 2005

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