LAHORE - Sentiment at the local bourse remained positive this week, shored by anticipation of further easing in the upcoming monetary policy and positive rumours, particularly in the consumer space. While second and third tier stocks were in the spotlight, key sectors like cement (higher cement prices), textiles (weakening rupee-US dollar exchange rate), and banks (expectations of 100bp rate cut in Dec 2012 losing steam and consensus now eyeing a 50bp cut) were also in focus. Resultantly, KSE-100 Index gained 336 points (+2.1 per cent WoW) to close at 16,574, with volumes rising 15 per cent WoW to 292m shares. On the macro front, Forex reserves fell to $13.58b on account of IMF loan repayment while this week’s T-bill auction saw yields inch up slightly (up 1-5bps). Other key news highlights of the week include 1) Unilever’s decision to delist from all bourses and 2) Lahore High Court’s (LHC) order to construct Kalabagh Dam.

Experts said that in anticipation of lower inflation for the month of November and further monetary easing kept local bourse in the bull-run. Market gained by 2 per cent on WoW basis with average volumes showing a healthy rise of 37 per cent to Rs 6.3b. Investors remained bullish in cement stocks while textile sector also joined the bandwagon, as investors are hoping better earnings of the sectors amid better margins. The buyback announcement from Unilever management brought the stock in limelight as investors anticipating the deal to be struck at a higher level, while investors’ interest was also seen in other consumer stocks like Nestle and E-foods. As the year end approaching near, renewed interest in banking sector was also seen.

On last day of the week, Karachi bourse continued its upward trend and closed at 16,574 points for the first time ever. Healthy volumes of Rs6.7b witnessed but volumes remained confined towards mid cap stock like 89 million shares traded in FCCL alone. Investors’ interest was also remained in banking stocks with National bank closed at its upper limit with healthy volumes of 12m shares.

Experts said that Karachi Stock Exchange, on the back of favorable changes in the tax regime, reduce interest rates, better foreign flows and improved relations with US, has been one of the best performing market in 2012 to day in Asia. In the 2012YTD, the benchmark KSE-100 index has yielded a return of 43 per cent that fares better than last 10-years and 20-years average return of 25 per cent and 19 per cent, respectively. With market enjoying a bull run, investors’ interest is gradually shifting from income statement to balance sheet with increase focus on the portfolio investment. Market is now seeking a discount of 40 per cent on portfolio, which was in the range of 55-60 per cent a year back.

Going forward, with election related development expected to reflect positively on the market, it is expected portfolio valuation will continue to warrant investors’ attention.

Based on study of 13 sample companies and price discount of close ended funds to their NAV (Net Asset Value), experts see that market is now assigning an average discount of 40 per cent to portfolio valuation that is significantly better than last year. During 2011, when they initially opted to assign portfolio discount through this technique, reduced market depth resulted in assigning of higher portfolio discount of approx. 60 per cent by the market. However, with favorable development the volumes have improved in the re-rating of portfolio discount, which initially improved to 50 per cent in the early part of the year to 40 per cent. And can go further down if the rally continues.

Within sample universe, this reduction reflects positively on DKGC, NML, ATRL, AICL and Engro’s valuation. However, reduce discount is expected to reflect more positively on companies that enjoy improved operating environment as well. Portfolio value of DGKC stands out to be Rs18.3b (Rs42 per share), which major contribution coming from its group company MCB.