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WEEKLY
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| KSE increases 239 points on expectations of rate cut |
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Sunday, November 22, 2009
By Hina Mahgul Rind
KARACHI: The local equity market witnessed mixed trend this week. Foreign portfolio investment was witnessed in blue chips while decline in cut off yields and expectations for an interest rate cut in the upcoming monetary policy stabilised sentiments across the board.
The benchmark KSE 100 Index closed at 9,306 points rising 2.6 per cent (239 points) week on week. Improved economic indicators, expected interest rate cut and foreign buying caused the surge. Positive market behaviour was also supported by improvement in overall activity levels as average daily volumes rose 20 per cent week on week to 158 million shares. All eyes are now focused on 24th November Monetary Policy Statement.
More significantly, average traded value was recorded at $100 million (158 million shares) up from last week’s average of $85 million (131 million shares).
In contrast to previous week’s foreign portfolio outflow of $7.5 million, net FPI inflow was recorded at $17.8 million for the week. Amongst local investors, mutual funds continued with their buying spree and invested a net amount of $4.4 million (compared to net inflow of $5.8 million last week) while individual investors offloaded an aggressive net position of $15.1 million (compared to net outflow of $4.5 million last week).
SBP on Tuesday set Nov 24 as the release date of next Monetary Policy Statement (MPS). A 50-100 bps decline anticipated by the industry experts supported by 5-31 bps reduction in the cut off yield of T-bills invited buying interest in the share bazaar.
Moreover, positive economic news flow such as 22.3 percent reduction in July-October (2009) trade deficit and 84 per cent decline in the current account deficit to $1.071 contributed to the improved investor confidence.
The E&P sector was the predominant performer this week posting returns of 6.4 per cent on the back of news flow regarding the incremental oil and gas production from some of the oil and gas fields. Moreover, renewed interest was witnessed in the textile sector (up 3.8 per cent week on week) at the back of higher cotton arrivals and improved yarn export numbers. On the contrary, stocks of the cement, fertiliser and banks performed bellow the market expectations.
Economic numbers and development remained in limelight throughout the week as State Bank of Pakistan (SBP) announced November 24th as the date for its next monetary policy announcement. For the period 4MFY10, the current account deficit shrunk by 84percent to $1,071million. This decline has come on the back of smaller trade, services and income deficits, which have declined by 39percent, 43percent and 45percent respectively. Moreover, despite the fears that worker remittances would decline as the global recession spread to the Middle East, the country has witnessed an increase of 32percent in these inflows to $3,089million.
With portfolio investment turning positive and multilateral institutions providing external financing, the financial account has (despite the decline in foreign direct investment) seen an inflow of $2,997 million, an increase of 77 per cent. As a result, the balance of payments for 4MFY10 was recorded in the black to the tune of $1,342 million as against a deficit of $5,102 during 4MFY09.
The declining external deficits as well as the support extended by the IMF, World Bank and ADB has allowed Pakistan to build up its foreign reserves from a low of $6.7 billion in October 2008 to $14.3 billion in November 2009.
The SBP conducted its latest T-Bill auction on November 18 and accepted Rs26.5bn against a target of Rs20bn. Cut off yields declined by 31bps, 23bps and 4bps on 12, 6 and 3 months tenor respectively.
According to BMA Research Report the security environment remains fragile in the country as army continues its military operation in South Waziristan. Adding to this climate is the new wave of volatile political environment whereby the controversial National Reconciliation Ordinance (NRO) is set to expire on November 28. While President Zardari is expected to get immunity against the charges, other cabinet and parliament members may have to face respective alleged charges once the ordinance ceases to exist.
It is expected that the political news flow would drive the investment sentiments and set the market direction while eventual settlement of the issue may have to wait till after Eid Holidays (27th to 30th November).
According to stock market analysts the equity market did bounce back and traded within the expected range. The KSE 100 touched a high at its 10 week moving average of around 9,382.
The index closed the week at 9,306 while market participation on average increased by 22.2 per cent week on week.
The recent pull back gave its first signal with a positive Relative Strength Index - RSI divergence on daily charts and now as the benchmark KSE 100 index closed around the upper band of the expected trading range, RSI is giving a negative divergence.
Additionally during the week it was also observed bearish crossover from medium term moving average.
Further to this, Friday’s price action behaviour has formed a shooting star at a critical resistance level. Hence all above clearly indicate that market could potentially come under pressure during the next week.
Major support levels for KSE 100 index stall at 9,181 and 9,057 while resistance is expected from around 9,387, 9,472 and later 9,600. Should the market panic and fall below the lower supportive point, then further decline towards 8,800 is expected.
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ISSN 1563-9479 
