KSE range bound as low caps rule the roost

Investors desire to book sharp gains is one thing. Reality at the Karachi equity bourse is another.
Its been nearly a month and a half since the stock market pundits have been foretelling a renewed rally which would take the benchmark KSE to a promised land, near or above 10500 points. But its been around the same amount of time since KSE-100 has been found trapped in a narrow range of about 9400-9800 points, with just one unsustainable spike above summit 10k.
Trading volumes also suggest that investors are half-hearted. Average turnover in top 100 shares eased further to roughly 125 million in the month to-date, from 145 million in January. This is partly because the local investors, including individuals and fund managers are still net sellers at the regular counter.
The factors keeping them anxious vary from investor to investor. Some are constrained by liquidity shortage, some concerned about complications in the federal capital, while others simply don have enough confidence in the economy yet. Central to these, however, is sticky inflation and how it guides the decisions of monetary managers.
News from the foreign front isn motivating either.
Not only did MSCI maintain a status quo for Pakistan in its recent review, but it also remained silent on any prospects of an upgrade to MSCI Emerging Market Index in May 2010. "The fact that Bangladeshs inclusion in MSCI Frontier Market Index May onwards gets an explicit mention, indicates that probability of Pak upgrade to MSCI Emerging Market is potentially low in the May review," said KASB Securities note released last week.
As for the changes related to the blank sale principally agreed by the SECP over the weekend, sentiments aren exciting. Thats because the proposed changes are "basically a non-event", according to Ahsan Mehanti, CEO of Shehzad Chamdia Securities.
Ordinarily, range-bound behaviour, as is the situation of late, amid lack of directional news means the investors are thinking - i.e. consolidation - something which chartists believe bodes well for the market.
But such is not usually the case, when trading activity is confined to second or third tier stocks, in a season marked by corporate result announcements.
Basic number crunching reveals that turnover in top 30 firms (KSE-30) has averagely equaled just 30-40 percent of the total KSE-100 volume in February. This compared to the ratio of 70-90 percent in the many preceding months, shows the extent of investors apprehension over the so-called blue-chips.
Clearly, the proponents of bull market must do more to bring out the conviction.
PS: If market activity stays uninspiring this week, as is likely the case, observe the graph and try pondering why KSE-30 has been underperforming the benchmark index since the recovery began in late January last year.