Index to take cue from SBP policy stance

KARACHI: The Karachi Stock Exchange (KSE) benchmark 100-Index is expected to test the next level of 34,000 points next week as investors are expecting a major cut in the policy rate in the next monetary policy, dealers said.
“The State Bank of Pakistan is likely to slash interest rate by 50 to 100 basis points from the current 9.5 percent,” said Ovais Ahsan, analyst at JS Global Capital.
Reports are doing round that the central bank may reduce the rate by up to 150 basis points. However, “This steep cut is unexpected...100 basis points cut will be rational, and a cut of only 50 basis points will be disappointing for the markets,” Ahsan said.
Analyst at Arif Habib Limited also foresaw the index testing 34,000 points next week subject to a decline of minimum 100 basis points in the interest rate.
“It will not be negative for the market, even if the bank cuts the rate by maximum 50 basis points. This small cut against the market expectation may invite profit selling in the following session at the KSE,” he said.
KASB Research is expecting 50 basis points reduction.
Analysts said reduced rate of inflation at 4.38 percent for December 2014 amid slumped oil price at world and local markets strongly support their stance of an aggressive cut.
Moreover, a notable decline of up to 84 basis points in cut-off yield on treasury-bills since November 2014 also hinted a noticeable slice, they said.
The beneficiary stocks of the anticipated rate cut and collapsed oil prices will lead the buying spree next week. The scrip include cement, fertiliser, textile and independent power producers.
KASB Securities forecast the market rerating on the back of improving macroeconomic indicators. Political issues and progress on the military courts will be the key factors to set the market direction going forward.
In the week ended Friday, the KSE 100-Index surged 1.79 percent, or 588.21 points, and closed at an all-time high of 33,324.82 points.
KSE 30-Index increased by 0.82, or 386.79 points, during the week and ended at to 21,233.57 points.
The average daily turnover rose by more than 27 percent on week—on-week to 296 million shares. The average daily trading value rose by 20.5 percent to $153.6 million. The market capitalisation climbed by Rs173 billion to Rs7.66 trillion.
The foreign investors, however, remained net sellers at the local bourse. They sold stocks worth $6.1 million during the last week as compared to an outflow of $15 million a week ago.
The week witnessed increased interest in exploration and production companies - up 3.7 percent on weekly basis - driven by market consensus tilting toward oil bottoming out around $50/barrel, the brokerage house’s report said.
The cement sector edged up by 0.8 percent, banking sector improved by 0.4 percent on expectation for strong annual results and power sector was an attraction as the government committed to settle Rs270 billion in circular debt by April 2015. Fertiliser sector remained volatile, it said.
Nestle Pakistan Ltd, Dawood Hercules Corporation, NIB Bank, Shifa International Hospitals Ltd and Bata (Pakistan) were the major gainers, while Pakistan Tobacco Company, Colgate Palmolive, Grays of Cambridge, Nishat Chunian Power and Murree Brewery were the major losers.