Capital markets Stay updated with Business News, Pakistan news, Current world news and latest world news with Business Recorder.. Fri, 30 Jan 2015 18:32:34 +0000 SRA Framework 2.0 en-gb KSE: much too soon to confirm a break-out

KSEAfter nearly 40 days of lifelessness, excitement is slowly crawling back in at the KSE. As it turns out, select buying by foreign and local investors has pushed the benchmark index to a level which is seen ‘pointing towards a recovery’.

The KSE-100 ended at 11,954 points last week – its highest since March 14 – after marking an intra-week high of 12,023 points, which was also its biggest intra-day tick since mid-March. That, and the fact that last week’s average trading volume rose 25 percent (week-on-week), is gently creating ripples of optimism.

Big boys from the local mutual fund industry, who had been selling profusely in March, are also back at the buying counter.

NCCPL data show that mutual funds – led by NIT and PICIC, according to market sources – have bought $20.46 million worth of equities in the month to-date, nearly offsetting the sale of $21.02 million last month. Last week alone, the mutual funds poured in some $13 million, focussing on select banks and the oil and gas sector.

Foreign portfolio investors are also back in business. Boosted by $6.3 million of net purchases last Thursday, it’s the biggest single day inflow since mid-January; foreigners have bought $3.6 million worth of stocks in April to-date.


But all of this is micro-level optimism – not enough to overshadow the challenges ahead. The uptick in trading volume is certainly not va-va-voom, nor is the recovery in foreign portfolio inflows.

Last week’s average volume (50 million) is still half of the average seen in the first two months of the current calendar year. It is also less than the average volume (62 million) of the ongoing consolidation phase that began after the market slipped to its recent low of 11,223. Trading momentum in April to-date is also weak, with an average turnover of 49 million, as against 72 million in March.

The problem lies in the lacklustre behaviour on the part of foreign portfolio investors. The positive inflow this month, after the stormy sell-off of nearly $17 million last month, may be reassuring for some. But the quantum of inflow is still too little to turn chickens into bulls.

Plus, on a broader spectrum, the KSE-100 is still in a broad range of consolidation, which means there is no point turning bullish before the market crosses 12128~12300 with conviction. In case, it isn’t able to cross this level, a correction till early 11000s might be in the offing.

But if momentum builds enough to take the index over 12128~12300, the market could easily sail towards 12600~12700, a break-out from which can potentially make way for 13250~13500.   Then again, that is a ‘BIG IF’ in current times of uncertainty that may well be garnished by the typical pre-budget fears anytime soon.



]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Mon, 25 Apr 2011 06:27:42 +0000
National Investment Trust The National Investment (Unit) Trust is getting bigger and bigger. Boosted by growth in dividend income along with Rs1.45 billion earned from the difference between unit selling and buying price (element income), the country’s leading and oldest mutual fund saw profits jump 29 percent in the first nine months of current fiscal year.

As its fund managers remained focused increasing their holdings, together with the growth in AUM and better take-home profits shared by the KSE listed companies, the fund’s dividend income increased to Rs1.57 billion in 9MFY11 as against Rs1.28 billion earned in the year-ago period. However, the expansion in fund portfolio slightly tailed off its capital gains.

Backed by high appetite for equity securities and better performance of investment portfolio, the fund’s AUM reached Rs37 billion at the end of March, as against Rs32.9 billion same period a year earlier.

“As the government has imposed capital gains tax, NIT’s fund managers refrained from aggressive trading which resulted in lower capital gains,” market sources told BR Research.

The NIT-State Enterprise Fund also recorded phenomenal growth in dividend income, while its capital gain remained stagnant at last year’s level. However, SEF’s net income fell on account of lower element income. Element income can be defined as the difference between unit selling and buying price.

During the same period, the NIT-EMOF fund recorded a slight drop in net income in the face of growth in dividend income and capital gain. It seems that growth in expenses due to higher impairment losses on equity securities and higher management participation fee might have been behind the decline in EMOF’s net income.

To take the benefit of rising interest rate environment, NIT started two fixed income mutual funds in last fiscal year, NIT-GBF and NIT-IF. As GBF and IF holds 98 percent and 69 percent exposure in government securities and bonds, respectively, higher discount rate helped funds record remarkable growth in the net incomes of both these funds.

With the AUM of around of Rs2.9 billion, NIT-GBF earned 12 percent for investors in the previous quarter, outperforming the benchmark return of 11.59 percent, which is the weighted average yield of the 6-month T-bill and 1-month deposit rate of A and above rated scheduled ban (with a ratio of 70 percent and 30 percent ratio).

The future of NIT-GBF and NIT-IF funds look promising as both funds will gain from the higher discount rate. However, even if the discount rate decreases down the line, NIT-GBF and NIT-IF investors would book growth in income from capital gains.

]]> (Syed Murtaza Gheblehzadeh) Capital markets Tue, 12 Apr 2011 05:40:54 +0000
KSE: Mise en place for a whip up The countdown to budget FY12 has begun. And along with it should come the typical pre-budget uncertainty at the Karachi equity bourse, as is usually the case every year. The difference between KSE’s historical pre-budget gyration and this year, however, is that this time around, the signs are in, a bit earlier than usual.

Normally, the KSE-100 sees a strong first quarter on account of health corporate results that typically mark the quarters ending March. In CY11, however, the tides have changed. The benchmark index yielded a return of negative 1.75 percent in the quarter ending March 2011 – its lowest ever first quarter performance in roughly the last ten years.

Here, a look at the graph would help better understand the situation at hand.

The graph shows KSE-100’s daily return in the 100 trading sessions ending June each year, where, for the sake of clarity, the returns have been clubbed into 3-year averages. The wisdom of taking 100 days till June-end lies behind the fact that budget-related twists and turns at the bourse do not usually end till a week or two after the fiscal plan is announced.

Having said this, the graph shows that historically, the market dips the most in the last 20-25 days, keeping which in mind one can reasonably guesstimate that this time won’t be different.

In other words, the market, against all the adverts of the so-called attractive valuations, is likely to taper off from this point onwards.

And why shouldn’t it be. Historically, there has been a positive relationship between foreign aid/loan and FDI inflows, and the KSE. This currently appears to be in jeopardy in the wake of talks of Pak-US diplomatic tensions, and the government’s apparent difficulty in pleasing its multilateral donors – specifically the IMF.

Add to that, the uncertainty over fiscal deficit, RGST and agri tax factor, the political noise and the feared tsunami in the global oil market and its consequent impact on inflation at home, and the recipe is in place for a harsh bitter melon dish.

No wonder that despite the return of foreign portfolio investors to the market in the month-to-date, average trading volume at the bourse has become weak. Volatility, crudely measured by the difference between intraday high-low, has also taken a backseat.

These trends show, as this column argued a fortnight before, that the KSE-100 is looking for a direction -- only that more recent developments hint more towards a downward direction than upwards.

]]> (Syed Murtaza Gheblehzadeh) Capital markets Mon, 11 Apr 2011 05:32:00 +0000
Towards debt market development To say that Pakistan does not have a vibrant debt market would perhaps be an overstatement. A more appropriate expression would be that it’s ‘practically non-existent’.

The reasons why this view has gained currency over the years are many; market prices of debt instruments are often different from broker rates, there are valuation issues, and the listing of corporate debt takes a lot of time – often six months, according to some market participants – amongst other issues.

In addition, according to Nasim Beg, Chief Executive of Arif Habib Investments Limited, banks as trustees of TFCs “have failed to take timely action” in several cases of default. Beg also blames banks to have formed a “restricted-club” that doesn’t want to trade debt papers through the KSE’s recently launched Bond Automated Trading System (BATS).

Thankfully, however, the Securities and Exchange Commission of Pakistan is now trying to tackle these issues head on, amongst others, in its attempt to develop an efficient debt market.

Beginning next month, SECP sources say, the off-market trading of listed debt papers will be prohibited, with BATS becoming mandatory for all listed instruments. Even key trading details of the unlisted ones will have to be reported so that the pricing issue is, at the least, alleviated.

The SECP is also allowing the previously unlisted TFCs – which are about half of the total TFCs issued currently -- to get listed. Reportedly some have already come forward; some are shy, while others are facing reservations on the part of the bourses.

Sources say that BATS is also being tweaked to allow negotiable trades between two disclosed parties; though the identities of the transacting parties will not be disclosed to the market. Previously, only conventional order type transactions were allowed – as is done on KATS -- with the details of the transacting parties left undisclosed.

Studies are also being conducted to create a separate pricing institution. It would reportedly be a commercial entity regulated by the SECP, dealing in fixed income pricing services, and providing reliable valuations for different kinds of debt instruments on a daily basis, amongst other offerings.

The entity, which is likely to be crafted along the lines of the Bond Pricing Agency Malaysia and Thai Bond Market Association, will help assess the right price of ill-traded or ill-liquid instruments and will take away the pricing function form the Mutual Fund Association of Pakistan.

However, unlike other developments that are seen within weeks and months, this particular step, if viable, is likely to take some time before it’s formally rolled out.

Aside from ironing out pricing issues, the SECP has also been busy reducing the processing time of TFC issuance.

Official sources say that document duplication between the bourses and the regulator have been removed, whereas the SECP has also relaxed listing requirements for OTC counters, provided the papers are being offered only to Qualified Institutional Buyers.

In other steps to develop the debt market, the SECP has prepared a draft regulatory framework for debenture trustees which will be out in a month for public consultation.

Others, such as that for issuing Sukuk and commercial papers, which is being prepared in consultation with the central bank, will be issued later down the year for the purpose of stakeholder consultation.

Now, since the SECP is at it, here is another step that needs to be taken: strengthening the debt rating system in the country. “The independence of rating agencies has been questionable; they have not proven to be on their toes,” says Beg, though adding that this trait is visible across the globe as well.

But since the size of Pakistan’s market probably does not justify the need to have a separate debt-specific rating agency, perhaps the SECP should consider upgrading the rating agencies’ framework.

Lastly, but most importantly, institutions should be disallowed to invest in the National Savings Schemes – a policy that is acting as a major impediment to potential growth in corporate debt market. Hopefully, the finance ministry will resolve this matter soon, so that SECP’s efforts can bring better results.

]]> (Syed Murtaza Gheblehzadeh) Capital markets Thu, 07 Apr 2011 07:19:54 +0000
KSE: Looking for a direction

A change of hands is taking place at the Karachi Stock Exchange. After months of reliance on foreign portfolio to drive KSE-100’s rally, the dilly-dallying on the part of foreigners has now forced the market to think.

The phase is marked by price weakness, falling volatility and decreasing trading volume. KSE data show that the benchmark index slipped marginally during the week ending March 25 – 53.6 points to be precise.

Average volatility, crudely measured by the difference between intraday high-low, eased to 163 points last week from 216 points in the week before. Last week’s turnover also squeezed to an average 62 million from 112 million in the week before.

But what is the market thinking? Ordinarily, one could have attributed the slow days to the preference to wait-and-see before the monetary policy decision that was announced on Saturday. The policy decision, however, was no news as such, because most, if not all, participants had already been expecting a status-quo.

“Interest rates are not expected to rise this time, and the market already anticipates this,” Arif Habib Investments’ CEO Nasim Beg told BR Research before the central bank’s announcement. Beg added that expectations from the fiscal side were also positive, that also gives credence to the interest rate view.


And yes, indeed, things seem to have improved on the fiscal front -- at least on paper.  Plus, given the IMF pressures behind the drive for fiscal austerity, one can expect things to move along the right path.

One thing that could be worrying the market is the rise in global oil prices, and the potential havoc it can play with the economy. “At this level, global oil is still manageable, but if prices rise significantly then it could be troublesome for the economy,” said Habib.

However, knowing the overall historical short-sighted nature of most KSE participants, they should be playing deaf ears to Habib’s word of caution and focus instead on the potential gains in E&P stocks.

But even that is not happening. According to data compiled by – BR’s stock portal – the oil and gas index has shed more than 5 percent in the last ten trading sessions – despite the fact that global oil prices are hovering above $110 per barrel.

One aspect troubling the market, therefore, is “the less-than-expected volition expressed on the MTS counter”, according to leading broker Aqeel Karim Dhedhi. And as the graph shows, the selling by the foreign investors also hasn’t been absorbed through leverage trade.

However, last week’s FIPI inflow of $4.7 million, the first weekly inflow after two weeks, might be taken positive by the investors.  “Regardless of the fact that foreigners are still net sellers on a month-to-date basis (with an outflow of $16.9 million) the slowing pace of FIPI outflow might boost some confidence,” says Dhedhi, who adds that mutual funds are sitting on plenty of cash on the current levels.

If Dhedhi is right, then last week’s consolidation may well prove to be preparing grounds for a sharp rebound rally this week, with KSE-100 targeting 12,000 points in the first go. If he is not, then perhaps it would be better to stay on the sidelines than to take part in a market where foreigners have seemed to have lost their once-strong affinity.

]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Mon, 28 Mar 2011 07:06:37 +0000
KSE bows down to FIPI outflows

Talk about disappointment. Just when the bulls at Karachi’s equity market were expected to make further inroads by regaining their grounds, they seem to have drained out of energy.

KSE-100’s movement last week also smacked the theory that all good news is boon for the market.

Why else would the market pay no heed to the improvement in the large scale manufacturing index that turned positive after several months? Why would it also ignore the continuous improvement in the current account balance despite a nearly 8 percent month-on-month hike in average global oil prices in February?

Similarly, why should the fiscal measures ordered by the president fail to stimulate the market? Even the onset of margin trading – which is marked by the so-called ‘bullish bias’ -- failed to spark an upward rally.

Quite noticeably, the answer is in KSE’s asymmetrical relationship with foreign investors. Ever since the FIPI inflows started tapering off, the KSE-100 has been getting rather weak (See graph).

According to NCCPL data, foreign investors sold over $16 million of equities last week – taking the total month-to-date outflow to $21 million. This trend is likely to continue in the wake of regional sell-off triggered by the quake in Japan and growing conflicts in the Middle East.

This means that March might turn out to be the first month since May 2009 to witness a net FIPI outflow. And in turn, this implies that KSE-100 can be expected to extend its losses in the remaining days of the month.

The mood of the floor, however, is uncertain. “For the time being I am viewless,” said one mutual fund manager on the condition of anonymity. “I think the market will remain neutral, however, consolidation is more likely to have a downward bias,” said a technical analyst of a leading brokerage.

And these views are being clearly reflected at the bourse. The momentum is waning -- with the KSE-100 turnover dropping to an average 67 million in the last two weeks, compared to an average of 96 million the fortnight before.

At the same time, volatility has been increasing. Average difference between intraday high and low has increased to 201 points since February, from an average of 146 points in two months before.

Both these factors suggest that a dynamic shift is on the cards. The onset of margin trading that can potentially increase the participation of domestic players also points to the same.

But with most stock prices near their respective fair values, room for further increase is limited. And hence, the negative reaction at KSE these days

]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Mon, 21 Mar 2011 06:57:22 +0000
PIBs back in the game

Buoyed by signs of interest rate stability, the market has been witnessing improvement in the appetite for long tenor government papers of late.

With fears of price risk assuaging in the bond market, the sixth PIB auction of the current fiscal year, held two days back, saw participation more than thrice the size of the pre-auction target amount of around Rs15 billion.

This is starkly high as against the average participation to target ratio of around 1.02 for the first four auctions held in the first half of the current fiscal year.

The auction drew most of the participation in 3 year, 5-year and 10-year bonds, attracting nearly 22 percent, 11 percent and 61 percent, respectively, of the total participation of around Rs49.7 billion.

Given this scenario, the government rejected 7-year, 15-year, 20-year and 30-year bonds, and accepted a total of Rs22.4 billion from the other three tenor bond.

While on the heels of correction in market sentiments, the lowest bid placed on all maturities declined as compared to the lowest bids placed in the previous auction held last month, according to market sources.

However, on the back of strong buying pressure, the government raised nearly 78 percent of the total amount from 10 year bond alone, while cut-off yield declined by 15bps to 14.11 percent.

The demand for 10-year bonds is always in vogue as it is considered a benchmark security and therefore, it is highly liquid. The 3-year and 5-year paper also saw a drop in cut off yield by 17 bps and 18 bps to 14.07 percent and 14.11 percent, respectively.

The government had set a target to raise a total of Rs35 billion form two PIB auction in 3QFY11.However, better participation level and lower bids helped the government to sold Rs48.5 billion worth of papers.

On the contrary, the growing interest rate environment toppled the PIB auctions held in 1HFY11 as the government sold a total of around Rs27 billion worth of papers as against target of Rs85 billion.

With the market expecting interest rate to remain stable in the next few months, the appetite for PIBs is likely to remain smooth in 4QFY11. Given this scenario, it is quite likely that the government might set PIB pre-auction target above Rs40 billion for the last quart

]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Fri, 18 Mar 2011 07:04:10 +0000
Paradigm shift at KSE?

KSE-100’s performance last week had a strange similarity with Afridi's World Cup 2011 squad: just when you expected the ground to cave in completely, the prices, as did Pakistani team, bounced back.

After posting a nearly 7 percent decline in the preceding week, KSE-100 made a modest comeback of 65 points last Monday, as foreign portfolio investors poured in $2.2 million on a net basis.

But the striking movement was seen on Tuesday when the index soared by 319 points. The fact that the biggest single day jump since April 2009, occurred on a day when FIPI outflow was also at a multi-month high – of $3.8 million – begs further scrutiny.


In the last 294 trading days – Jan-2010 to date – only 61 sessions saw FIPI outflows. Out of those 61 days, 31 sessions saw the market fall, with an average of 113 points.

Of the remaining, 23 days saw the market rose modestly (with modesty capped at a rise of 50-60 points), with an average of 30 points. Only 7 times did the market rise significantly with an average of 164 points, which includes last Tuesday’s 319–point hike.

Such is the relationship between KSE-100 and FIPI outflow, and in this context, Tuesday’s rise hinted that perhaps the paradigm will shift – and that after several months of continuous selling, local players will stand up as net buyers.

This view was validated by market reports that NIT’s opportunity fund was seen aggressive last week, which, along with other asset management companies, bought some $2.5 million of equities on Tuesday. Even local individual investors became active last week – buying nearly $3 million worth of stocks.

The change of heart comes from local players’ renewed interest in banking stocks. Reportedly, as foreigners sold banking equities last week, the local accumulated. And the graph here, showing change in prices, somewhat confirms that notion.


Then of course, there is the MTS hoopla. In a much-celebrated fashion, the leverage was finally brought back to life last Saturday, in an event marked by the fashionably late arrival by the Finance Minister Hafeez Shaikh.


The MTS, therefore, is seen determining the future direction of the market. “The unrest in Libya and Raymond Davis issue here at home may keep foreign portfolio investors hesitant for a while, but that is likely to be offset by local buying through the MTS counters,” said Ahsan Mehanti, CEO of Shehzad Chamdia Securities.

But, on account of three possible reasons, that direction may not come for another few weeks. One, the actual implementation isn’t due until March 14; two, funds are expected to take time – including for board approvals – before they actually start dealing at the leverage country.

And lastly, the ‘conventional buy-on-expectation-sell-on-news’ factor. “We believe MTS should prove to be a short-term trigger, where investors will be eyeing implementation details in the upcoming week,” noted KASB Research last week.

Yet while possible relaxation of fiscal targets by the IMF and re-introduction of leverage may be sentiment enhancers, political uncertainty, given Davis’ issue, and strained relations between the PPP and PML-N, and the expected withdrawal of portfolio funds from emerging markets, may be points of concern.

The economic climate – marked by rising power tariffs, deficit monetization, and galloping global food and fuel prices. – isn’t sanguine either, albeit sans external account picture.

In such an environment, too sharp a rebound last week suggests that caution will be reflected through a range-bound movement in the days to come.

]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Mon, 07 Mar 2011 05:24:45 +0000
Market for sukuk goes ravenous The rising popularity of Islamic banking in Pakistan is providing the necessary impetus for the development of Islamic sovereign instrument market.

In light of the growing deposit base with Islamic banks amid limited Shariah compliant investment avenues, the third Ijara Sukuk auction of the current fiscal year remained well-covered. The government raised a total of Rs47.5 billion, compared to the pre-auction target of Rs45 billion.

The auction drew a bid-to-cover ratio (the value of bids received divided by the value of bids accepted) of 1.2, slightly lower compared to average bid-to-cover ratio of around 1.4 for the previous two Ijara Sukuk auctions held in 1HFY11.

Still, it was well above market expectations. As the government has already sold around Rs89 billion worth of Ijara Sukuks in the first two auctions, the market was expecting poor participation in the third auction.

With profit rates above or below the 6-month T-bill weighted average yield (benchmark yield) – currently hovering around 13.67 percent – bids placed in the auction were ranging from a high of 75 bps above the benchmark rate to a low of 100 bps below the bench mark rate.

However, high demand pushed down the cost of financing, making it possible for the government to issue bonds at zero margin above the benchmark rate.

The market is expecting to see another Ijara Sukuk auction in 4QFY11. “From a total of around Rs192 billion worth of assets under the present Ijara Sukuk issuance programme, the government has so far raised a total of Rs136 billion from all three Ijara Sukuk auctions. This means the government might arrange one another Ijara Sukuk auction with a target of Rs50 billion in the 4QFY11”, according to one Islamic banker.

The deposit size of Islamic banks, grew to Rs338 billion as of September 2010 from around Rs244 billion in the same period a year earlier, and SBP’s decision to raise the Statutory Liquidity requirement (SLR) by 5 percentage point to 14 percent for Islamic banks from April, 01, 2010, suggests upbeat appetite for Sukuk bonds down the line.

]]> (Shoaib-ur-Rehman Siddiqui) Capital markets Fri, 04 Mar 2011 09:50:18 +0000