June 21, 2012 (JS Research)
In FY12 so far, the KSE-100 has recorded a relatively muted gain of 9.4% vs. an average increase of 32.1% in the preceding two fiscal years. Nevertheless, the local bourse has outperformed its regional peers by an average 11.4%, while bettering commodities by a fair margin of 27.4% (measured through the CRB index). Interestingly, the gains at KSE have been largely limited to 2HFY12 (up 20.4%) mainly owing to the amnesty scheme offered by the government. Whereas in 1HFY12, the market contracted by 9.2% on concerns over domestic political scenario, complicated ties with the US and weak global economic outlook. Looking ahead, concerns over the validity of the federal budget (which includes the amnesty scheme) is likely to keep investors cautious, in the near term. However, clarity on this front and improvement in ties with the US should boost investor confidence, going forward.
2H show stealer in FY12
FY12 started on a murky outlook on concerns over domestic political scenario, complicated ties with the US and weak global economic setting. However, activity at the local bourse picked up pace in 2HFY12 as government announced favorable changes in the Capital Gain Tax regime (including an amnesty scheme for the investors). The KSE-100 has gained 20.4% in 2H so far (vs. a decline of 9.2% in 1H), while the average volume improved by 242% to 203.8mn shares/day. However, the activity has been skewed towards second tier stocks, which is evident from an improvement of only 80% in average traded value to US$57.8mn. Overall, the KSE-100 has gained 9.4% in FY12 till date, outperforming the regional peers by 11.4%; despite a net outflow of US$110.6mn by the foreign investors.
Cements the investors’ darling in FY12
The cement stocks remained in the limelight throughout FY12 on the back of consistent increase in product prices leading to supernormal growth in their profitability. As a result, the Construction and Material sector outperformed the index by an average 78%.
On the other hand, Oil & Gas sector owing to the circular debt and Chemicals (predominantly fertilizers) due to gas curtailment underperformed the market by 11% and 10%, respectively. The banking sector outperformed the index by a nominal 3%.
Murky outlook to keep investors sidelined
The uncertain domestic political scenario following the disqualification of the Prime Minster and unresolved ties with the US are likely to keep investors cautious in the near term. We prefer stocks like POL, APL, HUBC, KAPCO, PTC and NBP offering double digit dividend yields, while we maintain our positive bias towards PPL, PSO and LUCK on the back of their compelling valuations.
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Also in focus
Textile exports down 8.9%YoY in May 2012
The Pakistan Bureau of Statistics (FBS) released the textile export numbers for May 2012, which stood at US$1.14bn, down 8.9%YoY. The same however remained flat on a MoM basis. The dip in exports was mainly on account of the energy crisis in the country. Cumulative exports in 11MFY12 came in at US$11.27bn, a decline of 9.6%YoY.
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