KSE-100 under strange clouds

Finally, the pre-budget uncertainties are over. But the post-budget behaviour on the KSE has paved way for another set of doubts for those wanting to figure out future direction of the market.
Since the government didn provide any relaxation on the capital gains tax front, the immediate reaction of the pundits was sharply negative.
"We expect the market to react negatively on Monday by 100-200 points unless some confidence building comments in this regard are made by Finance Ministry officials in the post-budget press conference," wrote Topline Securities in the investment note released after the announcement of the budget.
Yet, while no concrete confidence building measures were taken, the KSE-100 eased by only 25 points on Monday, whereas the week ended with a decent gain of 1.2 percent.
Perhaps, the market took heart from the fact that pre-budget noise of the increase in corporate tax on banks/DFI didn materialise. But that doesn make a lot of sense; since the budget itself isn market friendly, so to speak.
According to BMA Capitals estimates, the only heavyweight sector that might see a positive impact of the Finance Bill 2011 revisions is banking sector - one whose prices are already market weight according to BMAs estimates.
Having landed itself above the key resistance of 11,900-12,125, the KSE-100 is currently at 12,377 points. Will it sustain itself above this point?
Well! Market men appear to think so - citing 12,600-12,700 points, which if broken may lead to 13,400 points, according to Qasim Anwar, technical analyst at brokerage AKD Securities. The recent rise in trading volume, which suggests strong momentum, might substantiate that. But the problem is that economic realities may not necessarily justify a sharp northward move.
The end of excessive inflation is nowhere to be seen, with the CPI expected to continue in double digits for the 5th year running, according to KASB Securities estimates. Even Topline Securities - that is otherwise seen blindly bullish at all the times - spelled caution last week.
"The buoying fiscal deficit would more certainly force the government to curtail its developmental spending, thus reducing impetus for growth," Toplines research said last week - highlighting that the fiscal deficit will keep the two imminent threats alive: crowding out and/or inflationary borrowing.
Quite interestingly, investment flows are also at the cusp of strange shift.
Foreign portfolio investors seem to have become sellers again, with a net sale of nearly $7 million last week. Local individuals and mutual funds, however, were not seen selling as profusely as they have been for the last whole year. (See table for details).
Usually, the KSE-100 tracks the movement of FIPI inflows/outflows - and that trend has been stronger in the post-floor era at the bourse. It is too early to say whether FIPI outflow will continue this week or in the weeks to come or if KSE-100 would start following the FIPI outflow.
But considering that leverage positions have begun to rise again with Rs 52 million borrowed (on net basis) last week - its highest since the week ending April 8 - may be a signal of a correction soon.
And the fact that the last time net weekly margin positions marked a high; stocks fell in the subsequent week, also tends to affirm the notion of correction.