Morning Call about Political tension and global financial crisis pushed KSE down 1QFY12

Karachi: The Benchmark KSE-100 Index lost its vigour by 6% or 734 points to end the 1QFY12 above 11,700 levels.

According to Arif Habib Limited, the Index traced a zigzag trajectory moving within a range of 12,576 and 10,842. Despite healthy corporate results from Index heavy weights like OGDC, PPL and NESTLE, the Benchmark Index remained in the red zone as financial crisis in the EU and US, unstable law and order situation in Karachi and tension between US and Pakistan relations took their toll on the market. Similarly liquidity of the market also shrunk by 8% QoQ to an average 46mn shares a day from 51mn shares a quarter back.

Global Financial crisis taking its toll on the local bourse …
Ever Intensifying Europe’s debt crisis and economic turmoil in US caused a bearish spell in the financial markets across the globe as expressed in the chart below. KSE-100 Index also endured this onslaught, pushing it down to the 10,800 level when S and P changed its outlook from AAA to AA+.

…Forcing FIPI to decline by USD 46mn
This turmoil led to a decline of USD 46mn in Foreign Investors Portfolio Investment (FIPI) during the quarter compare to a net outflow of USD 22mn in the last quarter.

…while, falling CPI turned it around
This downward momentum in KSE was arrested by the latest CPI figure of registering 11.56%YoY against an expected 12.91% YoY for the month of Aug’11. The slowdown in CPI headline inflation was mainly on account rescheduling of basket weights along with rebasing to FY08. The drop in CPI figures warranted towards a possible to a probable reference cut by 50-100bps. Market participants welcomed this decline in the CPI as KSE-100 Index gained 329 points, highest daily gain since August 18, 2008.

…Heavy weight underperformed the Benchmark Index
The stocks of OGDC and NESTLE dropped by PKR 20 and PKR 1,826, respectively contributing roughly 350 and 340 points in the fall of the Benchmark Index. Steep decline in the price of NESTLE has reduced its weight-age in the Index to 5.2% from 8.2% in the start of the quarter.

Market Outlook
We re-iterate our positive stance on the market for 3QFY12 attributable to strong corporate results and discount rate slash. Greater than 50 bps cut in the key rate in the upcoming MPS would not just keep the market in the green zone but also aide in increasing market liquidity. Global economic outlook and progress on US-Pak relations are likely to influence market sentiments. We advise clients go long in scrips which offer attractive dividend yields and earnings growth. AHL Research top picks include FFC, ENGRO, POL, PSO, NBP, NML and HUBC.

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