The benchmark KSE-100 index has touched its all-time high as the index closed at 15,712 points yesterday. That the index will break the all-time high by the end of 2012 was anticipated, as market pundits believe the scrip valuations on offer are the cheapest in the region, even after applying the traditional regional discount of 20 percent.
Where now from here is the next big question and it appears that the bulls camp has more numbers than the bears. The market is abuzz with voices of the index breeching the 17,000 level by the time of the general elections.
One recalls that this was exactly the level tipped back in early 2008 when the market touched the then all-time high, but the collapse that followed is well-documented and does not warrant repetition.
Whats different from then and now? When one looks at the potential upsides and capital gain on offer reading a majority of brokerage research reports, it appears that the listed companies fundamentals were never stronger than what they are today. A major reason cited by the ullish camp is the extremely cheap forward price-earnings multiple of 6 - 6.5. The P/E multiple of 8.5 back in 2008 pales in comparison, thus the potential upsides, say the bulls.
Those in the other camp believe that the tipped fair values are at times divorced from reality and the reality is that with the crippling energy crisis today, the fair values need a major revamp and it does not warrant a comparison with 2008.
The continuously declining interest rates have also played a vital role in the indexs surge in the last six months. With a vast majority anticipating further rate cut by the SBP, the optimism could well be justified. That said, concerns remain, because previous rate cuts have neither resulted in huge private sector credit off-take nor a surge in the volume of shares traded at the bourse.
The KSE All-Share volume has been on the lower side for quite some time now despite the perceived improved fundamentals favourable CGT decision and declining interest rates. KSE has a history of both minor and major collapses with volumes shrinking and index rising - and this is what fears some this time around too.
Even in the low volumes, the trading of small-cap companies, known as Kachra stocks in market slang, has picked up. The 1000-index volume has averaged 65 percent of the All-Share volume January 2012 to date, whereas the previous two years average of 100-index volume was 76 percent of All-Share volume.
Recall that in March 2008, when the index started picking up, the 100-index volume shrunk to 63 percent of the All-share index.
Pundits argue that most of the scripts out of the 100-index are not necessarily backed by strong fundamentals, and there increasing share in the volume could well be disastrous, should a negative trigger hit the market.
Election euphoria is also being termed as a reason for market robust performance, but history suggests otherwise. KSE has traditionally consolidated in the run-up to the general elections of 2008 and 1997, with modest returns. The year 2002 was an exception for obvious reasons, as the fear of discontinuation of polices was not non-existent under the military regime. The bulls are making all the voices at the moment, but it will soon be clear who has the final say.