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Thursday, 4 October, 2012
Bulls catapult index to 54-month high KSE index hits historic high of 15,712.21 points KARACHI
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ISMAIL DILAWAR
HE Karachi stock market closed Wednesday at what the Exchange said was its “highest” level with benchmark 100-share index peaking to a historic 15,712.21 points. According to official data, this jump by the index happens to be the 54-month high as on April 18, 2008 the benchmark had climbed to its highest level, 15,676.34. Wednesday’s upward movement by the index marks an increase of 35.87 points compared to that of April 2008. The KSE said the maximum increase in KSE-100 index was 960.50 points on June 24, 2008 against a maximum decrease of 696.25 points the market had witnessed on December 31, 2007. On July 14, 1998 the index had nosedived to its lowest level of 765.74 points with market capitalization for the day standing at Rs 234.145 billion only. The highest trading turnover at KSE was recorded at 1.122 million on April 16, 2004 with the index standing at 5,582.28 points. “KSE 100 index breaks the previous record,” said the regulators at Karachi Stocks Exchange (KSE) in a statement. The investors’ hope for a further rate-cut, of at least 50 basis points, by the central bank on coming Friday, Oct 5, is said to be the major stimulus for the index hitting the historic high. “Highest ever closing by KSE index today amid hope that the interest rate will further decline,” viewed Mohammad Sohail, a senior stock analyst and chief executive officer of Topline Securities. Ashen Mehanti, another senior equity market
observer and director at Arif Habib Securities, believes that the decrease of previously doubledigit Consumer Price Index inflation to 8.79 percent during September had raised the speculations for a 50 to 100 basis point cut by the State Bank in its next monetary policy decision due tomorrow on Friday. “Pakistan stocks closed bullish… after Sep ‘12 CPI Inflation stood at 8.79pc YoY raising speculations ahead of SBP policy rate announcement due on Oct 5,” the analyst said on Tuesday. Farhan Mahmood of InvestCap Research said the local market had already priced in the impact
of 50 to 100 basis points decrease in the discount rate as the banking stocks plunged by 8 percent in last two months while the KSE 100 index was up 6 percent. Another InvestCap analyst Abdul Azeem viewed that the benchmark touched the highest level of its current rally on Wednesday. The day saw the KSE 100 index gaining 64 points or 0.41 percent compared to Tuesday’s 15,648.29 points. The index hit the intraday high of 15,747.64 points and then slid to the intraday low of 15,607.10 points. The trading turnover at the ready counter was recorded, however, lower at 107.651 million shares as against 140.793 million of the previous session. The trading value for the day accumulated to Rs 4.2 billion against Tuesday’s Rs 5.9 billion. While the market capital stood almost flat at Rs 3.964 trillion compared to Rs 3.947 trillion of the previous day. “Turnover was not as healthy as it should have been at this level,” viewed Abdul Azeem of InvestCap Research adding that the index needed healthy volumes to take it further up towards 15,850 points level. The analyst foresees the index moving towards new highs. “The index still has the potential to go further up towards 15,850 points. Closing above 15,570 points is expected to be a confirmable zone,” he said. The day’s volume leader was Jahangir Siddiqui Company which saw its 13.354 million shares traded each at Rs 13.43 in opening and Rs 13.99 in the closing. The trading volumes on the future market dip to 7.877 million shares against 12.543 million of Tuesday.
ADB enhances Pakistan’s growth projection to 3.7 per cent ISLAMABAD APP
The Asian Development Bank (ADB) has enhanced Pakistan’s growth forecast for the year 2012 to 3.7 from 3.6 percent projected earlier. For Asia, the bank has scaled back 2012 and 2013 growth forecasts, saying that after years of rapid growth, the region must brace for a prolonged period of moderate expansion amidst an ongoing slump in global demand. In its Asian Development Outlook 2012 Update, the bank predicted Pakistan’s growth at 3.7 percent, which was early predicted at 3.6 percent by the Asian Development Outlook re-
leased in April this year. It is pertinent to mention here that the Asian Development Outlook and the Asian Development Outlook Update are ADB’s flagship economic reports, which analyze economic conditions and prospects in Asia and the Pacific, and are issued in April and October, respectively. The report has projected the same growth rate of 3.7 percent for the next year (2013) against the prediction of 4 percent. The report has scaled back 2012 and 2013 growth forecasts for India, which will slow to 5.6% in 2012, down from 6.5% in 2011. Chinese ecnomy is forecast to grow by 7.7% this year and 8.1% in 2013, a drop from the 9.3% posted in 2011. For overall South Asia, the
A late cut too many? Another rate-cut to slash banks profit by half in 2013
growth has been predicted at 5.5 percent as compared to 6.2 percent in 2011. The report projects the region’s gross domestic product (GDP) growth dropping to 6.1% in 2012, and 6.7% in 2013, down significantly from 7.2% in 2011. The report notes that the ongoing sovereign debt crisis in the Euro area and looming fiscal cliff in the US could have disastrous spillovers to the rest of the world, particularly developing Asia. The projected slowdown is likely to ease price pressures, however, with inflation falling from 5.9% in 2011 to 4.2% for both 2012 and 2013, assuming there are no spikes in international food and fuel prices.
KARACHI STAFF REPORT
With expectations of yet another policy rate cut in upcoming monetary policy, one of the major concerns for investors is the earnings outlook of Pakistan banks. The local banks are already facing margin compression due to 350 bps cut in discount rate and 100bps rise in minimum deposit rate in less than 1.5 years. “We believe that contrary to common perception if discount rate is cut by 50-100bps, banks annualized earnings will be negatively affected by 3-7 percent,” said Topline analyst Farhan Mahmood. The analyst said if the central bank cut the discount rate by 50bps, the 2013 estimated profits of his sample banks would increase by 3 percent now compared to earlier projection of 6 percent. He said his side had downgraded earnings growth to 6 percent from 14 percent on August 13, 2012 after the SBP surprised the market by slashing rate by 150bps. Last time in 2011 when SBP reduced discount
PARCO acquires LPG giant SHV Energy KARACHI STAFF REPORT
Pak-Arab Refinery Limited (PARCO) has acquired SHV Energy Pakistan (Private) Limited, one of the country’s largest LPG marketing and distribution firms, The acquisition would take effect from the first of this month. The SHV Energy Pakistan was previously a 100 percent owned subsidiary of SHV Calor Asia B.V. (Netherlands) and is one of the largest LPG marketing and distribution companies in Pakistan. The company has been issued a license for storage, processing, filling and distribution of LPG by the Oil and Gas Regulatory Authority (“OGRA”). It has a nationwide network of distributors and customers and also has expertise in industrial applications of LPG. The PARCO is a joint venture between the Government of Pakistan and the Emirate of Abu Dhabi. PARCO, A fully integrated energy company is a key player in Pakistan’s oil supply and logistics and has become the strategic fuel supplier to the country with a broad portfolio of operational ventures in refining, transportation, storage and marketing of petroleum products. -
One step forward, two back for Greece on debt BRUSSELS AGENCIES
Every step Greece takes to shore up its finances seems to make it harder for Athens to make the numbers add up in the long-term, especially when it comes to its spiralling debt. Monday’s 2013 budget plan contained some positive news – for example, the expectation that Greece will have a primary budget surplus, before debt financing costs, for the first time since 2002 - as well as some more alarming forecasts. Chief among those was an acknowledgement that the economy will shrink again next year, by 3.8 percent, the sixth annual contraction in succession, and that the debt-to-GDP ratio will rise to 179.3 percent in 2013, a dauntingly high figure. The bottom line is that Greece is in a worse state now than even the most pessimistic forecast just six months ago. The relationship between growth and debt is the focus of the European Commission, the European Central Bank and the International Monetary Fund — the troika of inspectors currently in Athens poring over the government’s projections. In the coming 4-6 weeks, the troika will publish its latest report assessing whether Greece’s debt is sustainable in the longer-term, something many private sector economists have already concluded is not the case. In its last analysis published in March, the troika said Greece needed to get its debts down to 120 percent of GDP by 2020 for the situation to be manageable and concluded the goal was achievable under certain optimistic assumptions.
rate by 200bps, banks lending rate reduced by approx 40-50bpps only because banks increased floor rate. Assuming the same trend to continue, we might see lending rate falling by approx.10-12bps. Moreover, banks on the other hand will opt to shun expensive deposits to mitigate the impact of cut in discount rate and will increase their advances. In case of higher discount rate cut i.e. 100bps, banks 2013 earnings to dilute by 6- percent7. Thus, in that case, 2013 earnings will remain flat as we have also assumed fall in deposit rate and increase in lending. In fact few banks have aggressively started marketing consumer financing. On the flip side, 50-100 bps reduction in discount rate may lead to 2-3 percent improvement in earnings in short run. According to accounting rules in Pakistan any gain and losses on re-measurement for held for trading (HFT) is included in profit and loss account while the impact of reval-
uation in all other categories of investment is taken in profit and loss account when actually realized upon disposal. Thus, there is only a small portion of those gains will be reflected in Income Statement and major portion of that revaluation gain will go into the equity thereby increasing the book value of the banks and thus reducing PBV marginally. In arriving the revaluation gain, we have also assumed that banks will realize 20-25 percent of the investment portfolio in available for sale (AFS) and Held to Maturity (HTM) in short-term. Incorporating a 100bps cut, Pakistan banking sector is trading at one year forward PE of 5.9x and P/BV of 1.1x with average ROE of 17 percent. This is 35 percent and 38 percent discount than last 5 years average PE and PBV of 10.7x, 1.8x, respectively. “We believe that market has already priced in the impact of 50-100bps cut as banking stocks plunged by 8 percent in last 2 months while KSE 100 index is up 6 percent,” said Farhan.