Is KSE stuck in a lull?

When the benchmark KSE started receding from its recent intraday high of 10,731 points on April 20 to loiter around 10,400-10,600 it seemed like a logical move.
The index had just marked its highest point of the rebound rally started in January last year, with a major concern on investors minds.
This was Pakistans future with the IMF as the government battled with VAT, increasing frequency of power outages and inevitable hikes in energy tariff amid tight liquidity that forced her to miss the quarterly fiscal deficit target.
But after the governments affirmation last week, that the IMF is not going to pull away the feeding tubes, one would ordinarily expect the market to start bouncing back.
Yet, the market has kept on thinking so far - perhaps because the corporate results were broadly mixed with modest growth in banking, negative results in E&P sector and uninspiring performance of fertilizer companies.
Since no significant development has taken place at the time of writing this note, it is safe to expect the market to remain dull and uneventful, leaving floor traders swatting flies with their newspapers - unless of course a late realization of IMFs reported nod or some other development over the weekend changes sentiments overnight.
The upside potential in that case would be 11,000-11,300 points, market pundits often cite with almost the same air of confidence that was seen before the crisis in 2008.
Such excessive buoyancy makes one a bit jittery. After all, and contrary to all the excitement touted by the local sell side analyst community, local players have been profusely selling since many months.
"I tell you every last fund is quietly selling with many equity funds sitting on 30-35 percent cash," one broker told BR Research last week.
And the selling shows everywhere. Data released by NCCPL reveal that local investors sold more than $250 million since October last, including $135 million by individuals and the rest divided between companies, banks, mutual funds and others.
In other words, the market is solely propped up by foreign investors who hold about a quarter of the markets free float in their kitty.
As long as foreign investors continue buying, the market will likely move in pursuit of summit 11,000, or may be even 13000 points as recently pitched by a NIT asset manager in an interview to a foreign news agency.
But what if foreign investments fly away, following the suit of HSBC Private Bank which is cutting stock holdings in emerging and developing markets, predicting asset prices will drop as much as 10 percent.
Fund mangers at HSBC have been betting against emerging markets, saying that they will likely under-perform for the next six months.
Going by that assessment, equities here at home might fall as money flies away from the Asian continent, unless someone expects foreigners to stay bullish on Pakistan while offloading elsewhere.
In a sticky inflation scenario, as is the case at the moment, this calls for caution. Who knows perhaps, this so-called phase of consolidation is actually a lull before a storm.