Analysts are extremely positive on the outlook of the corporate results, saying that banking and fertiliser companies are all set to announce their robust annual results, while the results of the oil and cement companies are also poised to post decent earnings.
"Currently, the KSE trades at an FY12E PE of 6.0x, which is at a discount of 49 percent to its regional peers against historical discount of 34 percent and offers a dividend yield of 8.2 percent", Muzzamil Aslam, economist at JS Global Capital, said.
He said that performance of the stock market, Fx market, and bond market is reported on daily basis, but some facts are not formally reported regularly. "It is a fact that despite the weak macro economic fundamentals, domestic demand in Pakistan is surging", he added.
He said that the fact that credit to the private sector is non-existent (at least in the past one year) makes this even more astonishing. He presented some key domestic demand variants' performance in the first five months of the current fiscal year of FY12.
Auto sales: In the first five months of the current fiscal year auto sales registered 20 percent year-on-year growth. The rise in sales came in spite of the average price increase of 4-6 percent in these five months. The persistent demand for autos can also be validated from the fact that import quantum of Completely Knocked Down (CKD), reported by SBP, also increased to $212 million, up 55 percent on year-on-year basis, during the period July-October 2011.
"We believe the surge in auto sales is even more impressive, considering the quantum of second-hand cars imports during the last five months", he said. Oil consumption: In line with the auto sales, the oil consumption of the country has also increased. Overall, a 5 percent year-on-year volumetric growth was witnessed even after 5-7 percent jump in the oil prices in the country. "We believe the reasons for the higher sales could be the re-allocation of the country's energy mix", he said. "However, it is interesting to note that the overall consumption of motor gasoline has increased by 24 percent and furnace oil by 5 percent," he added.
Cement sales: The cement prices, too, increased by 37 percent and 13 percent year-to-date. However, despite the soaring prices, overall domestic sales have grown steadily at 7.1 percent in the five months of the current fiscal year, he said.
Fertiliser consumption: Since January, the fertiliser prices have surged by a whopping 45 percent, or Rs 460/bag. Nonetheless, fertiliser application still increased by 3 percent YoY during the first 10 months of the calendar year. This indicates the feel-good factor currently being enjoyed by the farm sector in the country, he said.
Real estate: Although any data is not available to support this analysis, but the reality on the ground vindicates the view that real estate prices at the posh areas of the main cities have witnessed an increase of 20-25 percent, Mozzammil said. As per discussion with the key stakeholders in the real estate sector, buying in real estate is genuine and all on 100 percent cash basis. They identified two sources of funds in the real estate sector, that include overseas Pakistanis and Interior Sindh and Punjab areas. The primary reason cited for investment by overseas Pakistanis in real estate is the unrest in the Middle East and recession in Europe, whilst funds from interior areas are a function of windfall farmer income, he added.
About expectations about fresh flows to arrive at KSE, he said: "Historically, we have seen that a surge in domestic demand coupled with real estate boom has triggered a bullish rally at the stock market. But this time around, we do not see the same pattern in the stock market, as there is little retail investor interest at the local bourse due to capital gain tax. However, on the grounds of above facts we are extremely positive on the outlook of the corporate results."