AFTER nine weeks of a bullish run in a row, the Karachi stock market suffered a major pull back in the week ended Friday, with the KSE-100 index down by a massive 814 points or 13.1 per cent to close at 21,698 points, below the psychological 22,000-level.

The post-election rally had seen the Pakistani equity market gain 11.3 per cent, with the return for 2013 to-date at a fabulous 34.6 per cent. However, as the buying euphoria triggered by the budget 2013-14 unveiled the previous week got over, investors’ focus shifted to other local and global developments.

On the local front, the market was held in suspense over the outcome of the State Bank of Pakistan’s (SBP) Monetary Policy Statement (MPS), which was announced after the close of trading on Friday, and the possible outcome of talks with the IMF.

On the global stage, fears regarding the end of quantitative easing in the US, and slower growth in China and the European Union, resulted in a meltdown in equity markets across the world. Although the events were not expected to have a direct impact on Pakistan, investors at the local bourse were haunted by the fear of flight of foreign investors.

Since foreign investors, who have come to command 30 per cent of the market free float and hold equities worth $4 billion (mostly in the heavily-weighted oil and gas and banking sectors), their withdrawal is thought to have a domino impact that could send shares tumbling across the board.

Local individual and institutional investors, therefore, decided to take profit at the current high levels.

The average daily volume dropped by 49 million shares or 13.3 per cent to 322 million shares, from the average of 371 million shares traded in the previous week. Average daily traded value declined by 7.8 per cent to Rs9.3 billion, from Rs10.1 billion in the previous week.

Market capitalisation saw an erosion of Rs184 billion or 3.4 per cent to Rs5.276 trillion in the week ended Friday, from Rs5.460 trillion at the close of the earlier week.

Foreign portfolio inflows during the week slowed down to $9.2 million. This figure also included the buyback of Unilever Pakistan shares by its foreign parent, Unilever Overseas.

Foreign inflows could remain low in the short-term, due to the meltdown in the regional and global equity markets, which had the effect of reducing the Pakistani market’s valuation discount to the region.

News flow during the week related to the SBP announcing a 50bps cut in the discount rate to nine per cent after close of trading on Friday, and speculations over the government’s request to the IMF for a $3-5 billion loan, within the backdrop of the IMF team’s visit to Pakistan for post-programme monitoring talks. On the corporate front, interesting events were the discovery of oil and gas by PPL at Gambat Block, and the completion of Lalpir Power’s book-building portion — Lalpir Power is the first company coming up for listing at the stock exchanges this year.

Other key news highlights during the week included the May 2013 current account deficit clocking in at $356 million, and the release of textile export figures for May, showing cumulative textile exports at $1.2 billion, up 5.5 per cent over the earlier month.

Top gainers during the week included Honda Cars, UBL, Engro Foods, Nishat Chunian, Pakistan Tobacco, Pakistan Cables, Clariant Pakistan, NetSol Technologies and Bank of Khyber.

The laggards were led by PTCL, Dawood Hercules, Engro Corporation, LotChem, Adamjee Insurance, Pace (Pak), TRG Pakistan, IGI Insurance, JS Bank and Shell Pakistan.

The volume leaders during the week were Fauji Cement Company, Bank of Punjab, TRG, Lafarge Pakistan and Maple Leaf Cement.

Future Outlook: The week ahead will see the impact of the 50bps cut in the discount rate by the SBP. Analysts at KASB Securities say that the impact on the broader equity market is expected to be positive, given that the consensus expectation regarding the MPS was of a status quo. However, banking stocks could come under pressure, due to a further squeeze in their spreads.

Investors are also expected to keep a close tab on the progress for energy debt resolution, with the unveiling of the energy policy. Once the monetary policy-related rally is over, analysts advocate a cautious stance in the near-term, as the market has performed strongly post-elections.

Going forward, analysts at AKD Securities say that they see the market performance improving as investors price in the 50bps cut in the discount rate. In this regard, the more leveraged sectors, such as textiles, cements and selected fertilisers, are likely to come into the limelight. Investors are also likely to keep a close eye on the outcome of the talks with the IMF. — Dilawar Hussain