Last update: Sat, 06 Feb 2016 08pm
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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.