Bearish trend continues

The KSE-100 index last week lost 1.3 percent to close at 32,606 points amid lacklustre trading volumes. This was the fourth straight week for the benchmark index to end bearish, the equity analysts said. The trading turnover at ready-counter was recorded averaging at 109 million shares, marking a decline to nine-month low of 43 percent week-on-week (WoW).
Major fall was seen in media, life insurance, telecom, tobacco, financial services, personal goods, chemicals and electricity that shed 2-4 percent.
While the average daily value contracted by 47 percent WoW to Rs 5.2 billion.
Despite prevailing bearish trend, the foreign investors kept their nerves intact and made net buying of $3.4 million.
The week under review saw local mutual funds appearing as major net sellers of $25.9 million. The net buyers of $3.48 million and $14.8 million were the foreign and local banks.
The net buying of offshore investors in preceding week had totalled at $6 million.
"Activity at the bourse remained largely lacklustre ahead of the monetary policy statement," viewed Raheel Ashraf of JS Research.
The central bank on Saturday slashed the discount rate, the cost of bank borrowings, by 100 basis points to seven percent, a 42-year low. This one percent rate-cut came 50bps higher than the market expectations of a similar size. Analysts at Topline Research attributed the bearish week for the KSE index to aggressive selling by local funds, uncertainty related to new taxes in upcoming federal budget (FY16) and the passage of Gas Infrastructure Development Cess (GIDC) bill.
These factors, they said, dampened the market sentiments.
Raheel also cited rumours of hike in the Capital Gains Tax (CGT) in the new budget, which is due on June 5, as a drag on the volatile market.
The researchers at Arif Habib Limited (AHL) added that the prevailing rumours pertaining to the SECP's impending ruling for the CPPI-based funds, formally announced this week, was another reason for the market to close negative.
During the week, the auction of Pakistan Investment Bonds (PIBs) took place in which the cut-off yields shrank by 9- 32 basis points for 3-10 years maturities.
Other key highlights of the week were: GDP growth in FY15 expected to miss the government's start-of-the-year target of 5.1 percent by 1 percent, LSM expanding by 2.49 percent YoY in 9MFY15, Rs 149 billion out of Rs 580 billion PSDP funds expected to be allocated for construction of motorways and bridges, oil imports declining by 19.4 percent YoY in 10MFY15, government and Etisalat may potentially resolve dispute over the remaining Pakistan Telecom's (PTC) privatisation proceeds and APCMA demanding anti-dumping duty on Iranian cement. Going forward, the observers view the market to remain lacklustre on account of budgetary jitters.
However, monetary easing on weekend could act as a trigger, they added.
"In times of uncertainty (budget etc) and monetary easing, a hunt for high cash-paying stocks seems the optimal strategy," said the analysts.
The leveraged stocks are widely expected to get a boost from the 100bps decrease in policy rate. The listed banking companies would get a hit by monetary easing that would reflect adversely on their profit margins on advances.