The six-week long bearish spell finally ended last week where index gained almost two percent, after KSE management revised the exit mechanism rule resulting in fresh buying in key stocks which had touched lower levels and proved attractive for long-term holdings.
After six consecutive negative weeks, the KSE index has ended on a positive note with a gain of 200 points, or 2 percent, on Friday, June 23. The week remained capricious as the market gained 337 points (3 percent) on the first day, 163 points (2 percent) on the second day and losing 363 points (4 percent) on the last day of the week.
Renewed interest was observed in the market, as indicated by the increase in trading volumes on both ready and futures counters. The average ready daily volume was recorded at 222 million shares (Rs 27 billion or $440 million). Likewise, the daily volume in the futures market averaged at 66 million shares, higher by 20 percent, and 33 percent in value (Rs 10 billion or $170 million). This also hinted the re-entry of retail investors in the market.
On June 15, the market initiated a rally after SECP''s reforms regarding changing exit mechanism of lower circuit of 20 percent to only 5 percent, and banning ''blank'' selling for the June counter.
That seemed to have put reins at last, as the had SECP warned the stockbrokers regarding data submission in reference to ''short'' selling, which brought crisis in the beginning of the month plunging the market by more than 1000 points straightaway.
During the beginning of the week, the index was in the recovery mode as the market had remained continuously negative for the past 6 weeks. But on the last day, due to rumours of allowing short selling in July futures counters and the news of cancellation of privatisation of Pakistan Steel Mills caused the market to nosedive and end in a heavily negative zone.
An analyst from Investcapital Securities said that the outlook for future was optimistic, as the market was currently trading at a PE multiple of 10.15x on FY06 earnings, and 8.7x on FY07 earnings, which was very attractive if compared with other markets.
"The result season would start from next month, which would provide the much-needed fuel to the market. Furthermore, the market is anticipating a package for exporters in order to address their concern of external accounts deficit. A package for them can result in an increase in investment and exports and a reduction in outflow of foreign exchange from the economy.
Quite a few shares are trading at a discount to our fair values. Therefore they can provide above average return to investors in the times to come. Our top picks are DGKC, PPL, OGDC, NML, LUCK and ICI."
Kamlesh Kumar, research analyst from Alfalah Securities, said that the market settled around 9500 level, which was an optimum level to take fresh entries as the market had appreciated without any significant correction.
"Oil and gas stocks shall remain the top picks as gas wellhead prices are to be revised in July by Ogra. Attractive valuations multiples and low stock prices attracted the day traders and the long-term investors to take fresh positions to rebuild their portfolios.
Throughout the week banking, E&P and cement sectors were the most sought after and amongst them the OGDC, POL, MCB, NBP, DGKC and LUCK witnessed heavy trading volumes.
However, on the last day, the market witnessed another big downturn owing to profit-taking, along with rumours of cancellation of sell-off deal of Pak Steel Mills, which later on materialised. Cancellation of the sell-off deal of Pakistan Steel Mill by the Supreme Court along with reports of some exposure problems might create pressure in the coming week.
"With the ban on short selling to continue until further notice short term speculation is expected to remain sidelined. Going forward, the market seems stable, but privatisation issue can create some hiccups."