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.