The share prices saw one of the worst weeks in its history where the index witnessed free-fall and the market capitalisation worth $3.6 billion wiped off while equities were at four-and-a-half-month low level. The share market last week, ending on May 28, 2005, witnessed various issues. These included the threat of upcoming phasing out of COT that will commence from June 8, 2005.
CBR proposed to increase turnover tax, which affected investor''s confidence. The taskforce and SECP''s letters to brokers further accelerated the downward trend in the market. And, finally at the weekend on Friday, there was bomb blast in Islamabad, which totally shattered investor''s confidence in the market.
The KSE-100 index experienced a free-fall as investors remained shaky due to the developments on the regulatory front. The index lost 833 points, or 11.4 percent, close at 6467, whereas average daily volume also witnessed a downslide by 24 percent to stand at 219 million shares.
The rift between the KSE and the regulators plunged the stocks across the board where investors remained indecisive about the future of the bourses. The rumours regarding imposition of service tax on member''s commission and an increase in the CVT in the upcoming FY05-06 budget also put the market in a tailspin. The KSE''s market capitalisation came down from the level of Rs 2 trillion and closed at Rs 1.8 trillion ($30.6 billion) on Friday. (Highest market cap of Rs 2.8 trillion ($47bn) was seen on March 15, 2005). The average daily ready volume at KSE during the out going week stood at 219 million shares with average daily value of Rs 19.53 billion against 288 million shares and Rs 28.7 billion.
An analyst from Alfalah Securities said that no matter how much the investor community may want it, privatisation indeed is a politically difficult subject. The pre-bid meeting of PTCL was the scene of violent riots between the employees and police.
The employees unions are demanding job surety and regularisation of contractual employees, while such demands would impede any plans of the eventual buyer in reforming the company. Till yet the government seems committed to meet its deadline of 10th June. However, if the situation further deteriorates, it might reduce the potential bid for PTCL or might even delay the process. Politics indeed has a critical role in affecting the economic and social facets of a country.
In a tragic event last week, a bomb blast killed at-least 25 people in a holy shrine in Islamabad. Unrest in the federal capital can be a major scare for prospective investors who are currently considering entering the economy through participation in the privatisation process. The privatisation of NRL, PTCL and later on of PPL and PSO can bring a large influx of capital in the economy and in the market. This wave of liquidity would be the driver of market by 3QCY05. However, investors should stay sidelined till the uncertainties of CVT and phasing out of COT have settled down.
The week began on a negative note on Monday with the rumours that SECP had rejected KSE''s request to increase the limit on futures counter to 5 percent of free-float from the current limit of 1 percent of free-float.
However, the market recovered on Tuesday owing to positive development on PTCL privatisation front.
On Wednesday, the market remained highly volatile with a mix of positive (pre-bid meeting for PTCL) and negative news (69 bps increase in 6-month Treasury bills cut-off yield). Lack of institutional support kept the market under pressure during the remaining days of the week, while bomb explosion at Bari Imam shrine in Islamabad on Friday added fuel to the drowning index on Friday. Rounding up the week, the KSE-100 index lost 685.23 points over the previous week.
An analyst from KASB Equities said he expected market to remain under pressure before the Federal Budget, and a pre-budget rally is unlikely to drive the market owing to the shattered investor confidence and uncertainty regarding the futures. With the continual decline in KSE-100 index, the scrips with fundamentally strong backing and high dividend yields have become extremely attractive. Top picks for next week are Callmate, Fauji Fertiliser, Kapco, Hubco, Fauji Fertiliser Bin Qasim, Lucky Cement and Pakistan Oilfields.
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