Lower policy rate boosts KSE index to new historic high

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KARACHI: The Karachi stock market made a historical high on Thursday by touching psychological level of 16,000 points during intra-day trade and closing at 15,962 points.

Invest Cap analyst Mazhar Sabir said the improved performance was due to cut in the policy rate by the State Bank of Pakistan (SBP) in the first week of October 2012. The interest rate's decline was laced with price increases given by fertilizer, cement and textile sectors.

During the first half of the month, the market was capricious and expected more than 100 basis points (bps) cut in discount rate, however, a cut of 50 bps in discount rate from SBP was witnessed. This caused the market to dip and was lowered by 1.0 percent from the previous high level of 15,875 points. In the latter part of the month the market remained range-bound and depicted consolidation. However, at the end of the month on the expectations of another single digit consumer price index inflation figure coupled with in line corporate results of major companies, the market rebounded by 3.0 percent on monthly basis. The average market volume stood 124 million shares during the month under focus, which is relatively lower against the volumes of the previous month (down by 15 percent on monthly). The Karachi Stock Exchange (KSE) 100-share index yielded a decent return of 12 percent during four months of fiscal year 2012-13 and settling year-to-date return at 40 percent during nine months of calendar year 2012. On sector-wise basis, positive returns provided by a mix of textile (up 11.1 percent), cement (up 5.9 percent), and food producers (up 5.2 percent), outperformed the 100-share index during October 2012. On the flip side, telecom sector was down by 13 percent on monthly basis, underperformed against the 100-share index by 10 percent during October 2012.

Marked with relatively high volatility while having rebounded at the tale-end of the month, 100-share index extended its ride further with a monthly increase of 3.0 percent during October 2012. The market closed at its all time high level of 15,962 points. Primary reason for such improved performance from equities has been cut in the policy rate by the central bank in first week of October 2012.

With an expectation of below 8.0 percent inflation in October 12 coupled with latest treasury bills auction (T-bills cut-off yields down by 38 bps) suggest that the monetary policy is predicated to remain in the easing phase (with 50-100 bps discount rate cut expected in December 2012), making equity markets favourable for the investors. This is foreseen to provide impetus to equities going forward. The analyst said that textile, cement and oil and gas sectors would maintain the rising trend.

Local equities outperformed in the Asia Pacific region during the month and posted positive return of mere 0.05 percent (based on dollar market capitalisation) as against the Asia Pacific average negative return of 1.0 percent on monthly basis. The 100-share index's year-to-date return is still above par than that of the regional markets' as well as other world benchmark indices' with 29 percent return comparing average return of Asia pacific of 20 percent during the same period. Similarly, Pakistan equities received foreign funds of $38 million as against outflows in the Asia Pacific region of $497 million during October 2012. However, on year-to-date basis, Pakistan and Vietnam equities stand with smallest size of inflow with only $99 million and $20 million, respectively, while regional equities combined stand with a massive inflow of $38 billion during the period.

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