LAHORE The issue of the possible reduction in deemed duty on HSD put the refineries sector under pressure, leading the stock market to perform sluggishly. The KSE 100 Index remained bearish during the first three trading sessions of the week also due to pre-emptive selling by the local investors amid the Egyptian political crisis, experts said. The market closed the week marginally lower at 12,415 level, losing just 47 points and showing a decline of 0.38 percent as compared to the previous week. Average weekly traded volume remained unchanged at 117m shares while net foreign flows continued to remain in the positive territory and clocked in at USD6.1m for the week. Experts said that refineries price performance remained under pressure throughout, and closed -0.3 percent WoW on news of possible reduction in deemed duty on HSD from the current 7.5 percent. Some key corporate results were announced this week with Lucky Cement announcing below consensus 1HFY11 earnings of Rs4.52/share, resulting in a 3.2 percent WoW drop in its market cap. Looking ahead, result announcements of MCB, ABL and PSO next week could dictate market sentiments. Though SBP kept discount rate unchanged at 14 percent last weekend (contrary to market expectations), the KSE remained under pressure during the first half of the week led by pre-emptive selling by local investors due to Egyptian political chaos. However, market sentiments improved in the later part of the week on encouraging macro and political news, in addition to the upcoming result announcements. Foreigners too remained net buyers of US$6.1mn during the week. The SBP announced its 4th MPS for FY11, where it opted to keep policy rate intact at 14 percent. The central bank highlighted decline in government borrowing, surplus current account balance in 1HFY11 and optimism on the fiscal front as key reasons behind the decision. However, at the same time, it raised inflation expectation to 15-16 percent, and stressed the need to limit fiscal slippages. We opine that if political consensus emerges on key economic reforms, the tightening may be over. Foreigners again were net buyers of US$6.1mn, while companies stood as major net sellers of US$11.6mn. Experts are of the view that the outgoing week witnessed a stability in the policy rate at 14 percent which was against market consensus of a 50bps increase. Additionally, IMF imposed more conditions for further release of the next tranche of the USD11.3bn standby programme and stressed on better macroeconomic framework and curtailment of budget deficit which is expected to touch 6 percent of GDP for the year. News regarding abolishment of HSD on POL products also circulated during the past week which resulted in immense activity in the sector and a negative impact on its share prices. Our sensitivity analysis on the same highlights drastic impact on profitability for both ATRL and NRL as we maintain our Underweight stance on the sector and Sell calls on both the scrips. Expected launch of Margin Trading System (MTS) for the investors during the current month is expected to result in an improvement in volumes in the near future. KSE and SECP are scheduled to hold a meeting in this regard on Monday whereby any positive development can result in a trigger up to the actual implementation of the product. Furthermore, developments on the political front like dissolution of the Federal Cabinet and reducing its size to half along with a continuation of foreign inflows into the bourse are going to determine the market direction in the weeks to come. We however maintain a strong positive bias for sectors with stronger fundamentals and valuations i.e. Fertilizers, OMCs and Electricity which would most likely outperform the index. The recent pull-back can potentially test a resistance junction at around 12,515 (formed by head and shoulder neck-line and falling trend-line resistance). In our opinion the market remains vulnerable until it sustains above 12,546. The market on the last trading day of the week however witnessed a reasonable pull-back as RSI support came into play. However, the activity remained skewed towards second tier stocks. The current pull-back may potentially test the inverse head and shoulder neck line at 12,489; while a little ahead of aforementioned resistance looms a falling trend line at 12,543. Hence, with main board stocks lagging behind in terms of participation, the pull-back remains susceptible. Therefore, focus should remain on intraday trades and broadly on exiting on strength, experts said.