LAHORE - In FY12 so far, the equity market has recorded a relatively muted gain of 9.4 per cent versus an average increase of 32.1 per cent in the preceding two fiscal years. Nevertheless, the local bourse has outperformed its regional peers by an average 11.4 per cent, while bettering commodities by a fair margin of 27.4 per cent, experts said.

They said that the gains at KSE have been largely limited to 2HFY12 (up 20.4 per cent) mainly owing to the amnesty scheme offered by the government. Whereas in 1HFY12, the market contracted by 9.2 per cent 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.

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 per cent in 2H so far (vs. a decline of 9.2 per cent in 1H), while the average volume improved by 242 per cent to 203.8mn shares/day. However, the activity has been skewed towards second tier stocks, which is evident from an improvement of only 80 per cent in average traded value to US$57.8mn. Overall, the KSE-100 has gained 9.4 per cent in FY12 till date, outperforming the regional peers by 11.4 per cent; despite a net outflow of US$110.6mn by the foreign investors.

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 per cent.

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 per cent and 10 per cent, respectively. The banking sector outperformed the index by a nominal 3 per cent.

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 experts maintain positive bias towards PPL, PSO and LUCK on the back of their compelling valuations.