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Persistence matters; and who would know better than the bulls at KSE. Its been nearly four months since the benchmark KSE index hit its life high of 23,776 points, and since then the bulls have been defying the odds to stay near the top.
One would have thought the US Feds much-expected decision to cut back its quantitative easing (QE) would sap the energy from the KSE bulls. But, after a brief interval of foreign portfolio outflows (in July), the so-called gora buying at the equities exchange continued. The month-to-date FIPI numbers stand at $24 million, which is about half of what was seen in October.
Since the recently-nominated Fed boss, Janet Yellen, is adamant on keeping the cheap money policy, chances are that KSE equities would rally upwards alongside share markets worldwide. Last week, Yellen said there was "no set time" to cut back the QE, adding that Fed will likely continue with the policy, since US unemployment is still "too high" and the US economy "far short" of its potential.
The other thing working for the KSE bulls is the less-than-expected rise in inflation and a consequent change in view about the discount rate. About the time when Pakistan was entering into the IMF programme this year, there were some jitters about high inflation and increases in discount rate.
However, with the release of last weeks monetary policy, it is becoming clearer that inflation will be less than what the central bank had earlier expected, and, therefore, the discount rate will not be as high as initially feared (For more details, see Further increase in next review highly probable published in this newspaper on Nov 14).
This, coupled with the extension in US Feds QE, is seen offsetting the impact of discount rate hikes on equity valuation; although banks might see a bit of pruning as last weeks increase in policy rate will also raise the floor on savings rates that the banks have to offer to customers.
Aside from some sector rotation, there may also be some portfolio rotation as investors shift some of their funds to national savings schemes and government bonds. On the whole, however, market sentiments are rather positive, which in part is also due to all the privatisation talks, telecom auctions, and progress on the planned $500 million sovereign bond sales in international markets.
Little wonder then as to why the market has not exactly tanked since last July. Yes, it is true that KSE-100 has been making lower tops and lower bottoms since July. But, it is more like a "downward sloping consolidation", than a mandi, according to Qasim Anwar, technical analyst at AKD Securities.
This view is substantiated by the fact that in each of the downward movements since July 2013, trading volumes have been less compared to the rebounds, implying that the bear pressure has been weak.
And come to think of it, by Wednesdays close (the very day when monetary policy was to be announced) KSE-100 was at 23,287 points, less than 500 points shy of its life high of 23,776 hit on July 24, 2013. Anwar of AKD says if the market breaks through its September intra-day high of 23,727, then index should not be expected to stop before 25,000 points.
That said given that many stocks are around their fair values, it will be interesting to see which stocks will actually lift up the KSE.

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