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Bulls in the arena. (Stock Market).

June 2002: KSE 100 index climbed 7.4 per cent during the month of June, However, the bulls dominated in the first week when the index rose 8.7 per cent after which it fell 1.2 per cent. Correspondingly the aggregate market capitalisation rose 7.2 per cent during the month but the whole rise was concentrated in the first week when it rose 8 per cent (See Table below:).

The index soared on a single day (June 10) by 5.9 per cent or 100.43 points to close at 1791.72 because the market received heavy bouts of buying on the reports that Pakistan has welcomed the Indian measures to defuse tension and efforts to restore diplomatic relation. Another factor was the privatisation of United Bank Ltd. as it received an enormous amount from Muslim Commercial Bank to acquire 51 per cent stake in the bank. Analysts believe that the week opened with a huge positive gap as the gesture granted to Pakistan by the Indian government over collaboration efforts to ease the ongoing tension had reciprocated a grand welcome by the bulls. Consequently, the market has adopted a rejuvenated bullish disposition, as anticipations were running high of sanity to prevail over the political front. The upcoming budget may offer bounty to the market punters and equity investors. Banking, insurance and consumer goods sector may be the major beneficiaries of the budgetary measures. This was another reason why th e bulls emerged and took control of the stock market.

The federal budget for 2002-03, announced on June 15, unfolded several measures to boost capital market activity and encourage companies to invest more in the local bourses including removal of taxes on bonus shares, slashing of withholding tax on commission and brokerage houses from 10% to 5% and cut in the taxes on securities from 30% to 20%.

The market failed to generate fresh activity as values came under pressure while the index fell in the second week, notwithstanding the incentives provided in the budget. The sentiment is dampened after the bomb blast in Karachi near the US consulate. Unless and until the law and order situation improves, the lost confidence of the investors cannot be regained.

Second, the State Bank third quarterly report about the state of economy was not that encouraging as the rate of growth in GDP is below the target and the performance of the industrial sector far from satisfactory.

Third, the border situation with India as well as with Afghanistan continued to be a source of worry for the investors as they were hesitating to come forward on long-term basis.

Share prices scored marginal gains in the first post-budget trading week i.e. the third week but the capital market showed a rather muted response to the new package where the government has accepted nearly all the demands of the bourses. Business activity remained low as the stock market welcomed the budget in a rather depressed fashion. The package announced for capital market is sure to create depth in the market in the long run as it addresses the basic requirements and improves the fundamentals of local markets. Fahim Ahmad, research analyst in Harvest Smartrend Securities said that the measures proposed in the budget would have given boost to the stock and cheered investors provided uncertainty over law and order situation and geo-political situation has been defused.

Average daily turnover dwindled to almost half to 77.5 million shares from previous week's 143 million shares. The decline in business activity indicated that major players had sidelined in the absence of trigger factors.

The last week witnessed marginal increase as the full potential could not be realised by the budget package because of unfavourable investment climate. "After two weeks of relative calm in the backdrop of visit of the US Defense Secretary, fears of war again gripped the market", observed a stock analyst. "The post-budget rally, which was shaping well on the selected counters faltered half way". India's refusal to withdraw troops from the border and President's warning against the crossing of the LOC or make it permanent, did work against the underlying sentiment.

But few analysts claim the market is not weighed down by the border situation or the fear of war with India, it is a victim of some technical mechanism related to new carry-over transactions and badla rates. Reports that the Security and Exchange Commission is revising badla business rules to curb speculative activity, which the KSE plans to raise limits of circuit-breaker in tune with the post-budget rally were cited as the main reason of the current sluggishness.

All are united that the rebound could be delayed, it is sure to manifest itself in a big way in coming weeks, predicts a prominent stockbroker. Bank, energy, chemical and textile sectors could well lead the market advance being the chief beneficiaries of the budget and that is where investors are concentrating, he adds.

Towards the close of the month, most of the price changes were fractional and reflected lack of support rather than large selling from any quarter. Some of the leading shares which triggered market decline were PSO, Shell Pakistan, Lever Brothers, Wyeth Pakistan, Dewan Textile, National Refinery, General Tyre, Abbott Laboratory and Glaxo-Welcome. Pakistan Oilfields was leading among the gainers followed by 9th, 11th ICPs, Javed Omar, KASB and Co., Atlas Honda, the Custodian Modaraba, 4th ICP Mutual Fund, Al-Ghazi Tractors, Sapphire Textiles and Crescent Leasing.
(Rs. in billion)

 General Index Aggregate Market
Date Number Capitalisation

03.06.2002 1647.69 383.826
10.06.2002 1791.72 414.549
17.06.2002 1765.88 409.537
24.06.2002 1767.87 409.272
28.06.2002 1770.12 411.576

29.06.2001 1366.44 342.228

SOURCE: Business Recorder
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Author:Virani, Shamsa
Publication:Economic Review
Date:Jul 1, 2002
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