RE - Higher local commodity rates and strong institutional support played a vital role in keeping the market bullish despite concerns on the global economy and floods in the southern part of the country.
The KSE-100 Index gained 67 points, up 0.6 percent WoW, as the attractive valuations helped the KSE-100 Index outperform the region by 1.8 percent, which remained jittery as the Euro Zone crises intensified with Moodys downgrade of French banks, experts said.
According to them, with the result season coming to a close, market turnover showed signs of dullness with average volumes declining by 40 percent WoW to 50mn shares. Mixed macro economic numbers went largely unnoticed where as foreigners remained net sellers of US$1mn.
Attock group companies announced their FY11 results. APL posted earnings growth of 18 percent YoY and POLs earnings grew by 45 percent YoY. APL announced a final cash payout of Rs30 per share which was above street estimates. A healthy payout helped the scrip to outperform the KSE 100 index by 3.6 percent. In contrast, POLs impressive growth failed to excite investors as it underperformed the KSE-100 index by 0.8 percent.
Furqan Ayub, an analyst, observed that mixed macro numbers were released during the week as trade deficit widened and foreign direct investment (FDI) declined. Trade deficit widened by 19.54 percent YoY to US$3.3bn in Jul-Aug 2011 as import growth (19.94 percent YoY) matched growth in exports (20.26 percent YoY). Adverse law and order conditions and the power crises took its toll on FDI numbers which dipped by 40 percent YoY to US$112.4mn during the same period. On the positive side, overseas Pakistanis remitted a record US$1.3bn in August 2011(sixth consecutive month of remittances above US$1bn) beating the previous highest monthly record of US$1.1bn recorded in June this year. Furthermore, 10-year bond cut-off yields dipped by 26bps to 13.25 percent, reflecting markets expectations of a rate cut in the upcoming monetary policy.
Ahsan Mehanti, analyst at Arif Habib Investments stated that bullish activity witnessed led by blue chip oil and fertilizer sector scrips after global stocks rally on Greece support by Eurozone members and governments payments to IPPs in Pakistan energy sector.
He said that positive sentiments remained on hopes for early settlement of security concerns in Karachi after Supreme Court reserved ruling on Karachi unrest.
He observed that higher local commodity prices and strong institutional support played a catalyst role in the positive sentiment in the earnings announcement session ahead of policy announcement by the SBP this month end.
Samar Iqbal, another analyst, viewed that optimism about healthy earnings and handsome payout in FFBL kept its share price upward and it increased by more than 1.4 percent. She said that local bourse most of the week witnessed a dull session contrary to regional equity markets. Investors preferred to stay sidelines ahead of weekend.
According to experts, the area defined in between 11,350 11,450 levels once again posed resistance. The pattern evolved over the past four weeks is similar to an 'inverse head and shoulder depicting a build up of bullish energy field. Should the aforementioned resistance area be taken out; they anticipate market to propel towards 11,650 11,700. That said, inability to hold above the support defined at 11,140 would indicate weakness.
Muzzammil Aslam, an expert, maintained that the recent 50bps cut in the policy rate by the SBP has triggered a bull run in the bond market. This was also reflected in the last PIB auction held on September 14th. The auction witnessed an overwhelming participation of Rs26bn with cut off yields for 10-year bond declining by 26bps to 13.25 percent. Following the auction, yields have further fallen to 13.11-13.14 percent in the secondary market on expectation of a further rate cut in the forthcoming monetary policy statement. This holds significant importance for equity markets, as he believes stock valuations are likely to increase in the range of 2-5 percent for every 50bps decline in risk-free rate.
In addition to a possible upgrade in valuations by 2-5 percent of our coverage universe owing to a downward revision in our assumption for risk free rate by 50bps, a further cut in DR is also likely to bode positive for highly leverage companies. Experts highlight cements (DGKC, LPCL), textiles (NCL, NML), ENGRO and the circular debt engulfed energy chain as key beneficiaries of a subsequent fall in their financial costs. They hold positive outlook on the KSE, which offers an earnings yield of 17 percent. They are presently 'Over-Weight on E&Ps, Power, Cements, Textiles and Fertilizer sectors.