Strong arguments were presented by pundits and participants on both sides. The anticipations of the two groups were poles apart. Farah Marwat, an analyst at JS Global, was sure that the State Bank of Pakistan (SBP) would maintain status quo in its monetary policy, which is likely to be announced this week. However, Zubair Ghulam Hussain, head of sales at Foundation Securities, was equally confident that a raise of 50 to 150bps in the discount rate was on the cards.
The argument started after the release of higher-than-expected July CPI numbers. Inflation shot up to 8.3 per cent YoY in July, from 5.9 per cent a month earlier. While Farah and others on that side believed that one month146s data was not enough for the central bank to tighten monetary policy, Zubair and his crowd argued that the increase in the electricity tariff and fuel prices, and measures taken to meet the IMF loan conditions would unleash double digit inflation before the current year is out. The IMF, they said, was pushing for a 100 to 150 bps rate hike. All of this would force the SBPs hand at raising the rate.
It was under such ambiguity that investors traded at the Karachi stock market in the week ended Friday. Everyone realised that a sizeable increase in interest rates would impact the bottom-line of companies, particularly those in the highly leveraged textile and cement sectors. The only beneficiary of a rate hike would be the banks. Thus, while textile and cement stocks remained quiet, most banks saw sharp appreciation in their stock values.
And while the local participants played on both sides, and at times kept to the sidelines, foreign investors continued to pick value stocks for long term investment.
During the week, foreign funds invested $13.5 million in the countrys equity market almost all of it coming in the last three sessions up from $7.71 million worth of shares bought in the prior week. The foreign investors were impressed by the Pakistan equity markets gain of 40.03 per cent 2013 to-date, which outperformed almost all global markets, except the smaller Dubai and Abu Dhabi bourses, which gave out returns of 62.21 per cent and 47.56 per cent, respectively.
Although uneasy at heart, investors ignored both the prospects of a higher interest rate, as well as the military skirmishes with India on the Line of Control. In the week after the Eid holidays, the KSE-100 index notched up gains of 436 points or 1.88 per cent to close at 23,673 points, with trading volumes also ticking up.
The news flow during the week included the IMF agreeing to increase the proposed loan package for Pakistan from $5.3 billion to $6.6 billion, and the country repaying $145 million of a previous loan to the Fund. Meanwhile, foreign exchange reserves dipped to $10.2 billion, and remittances rose to a record high of $1.4 billion in July. In its quarterly review, the MSCI raised Pakistans weight in the MSCI Index up to 4.4 per cent.
At the Karachi stock market, unlike the earlier week when the volumes had faltered owing to Eid holidays, average daily volumes in the outgoing four-day week mounted to 220.52 million shares, up 30.62 per cent over the average daily turnover of 168.83 million shares in the earlier week. Average daily trading value amounted to Rs9.54 billion, representing a 5.9 per cent rise over the daily average of Rs9.01 billion recorded in the earlier week.
Market capitalisation surged by Rs104 billion, or 1.83 per cent, to Rs5,829 trillion, from Rs5.725 trillion at the close of the prior week.
The major gainers during the week were ICI Pakistan, Dawood Hercules, Shell Pakistan, Askari Bank, OGDC, Mari Gas, Siemens Engineering, J.D.W Sugar and IGI Insurance Company.
The laggards for the week were Indus Motors, Engro Foods, PTCL, Meezan Bank, Pakistan Oilfields, Attock Refinery, NIB Bank and Ghani Glass.
The five volume leaders included Bank of Punjab, Fauji Cement Company, NBP, Jahangir Siddiqui & Co., and Engro Corporation.
Financial results: The week saw corporate result announcements from the Attock Group, with Pakistan Oilfields, Attock Refinery and National Refinery disappointing the market with significantly below-than-expected earnings and payouts. Meanwhile, APL posted earnings in line with market expectations, with a bumper cash dividend and a surprise 20 per cent bonus issue.
Future outlook: The corporate results season would continue to drive the market, as some of the key companies, including Hub Power Company, Pak Suzuki, Engro Corporation, Pakistan Petroleum, NBP, HBL and UBL would unveil their results this week. Yet investors would keep a close watch over the monetary policy announcement, as the future direction of the market would be determined by the SBP146s decision over the discount rate.Dilawar Hussain
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