LAHORE - On the back of a lower-than-expected 50bps discount rate cut by SBP last Friday, sentiment at the local bourse remained subdued this week. The KSE 100-index closed the week at the 15,694 level, down 0.4 per cent WoW while average daily volumes dropped to 117m shares, down 12.7 per cent WoW. On the other hand, foreigners showed interest in the market, with net buying of worth $9.4m in the week. Highlights of the week included:National Saving Schemes (NSS) rates revised downwards by ~46-80bps; 50 oil and gas exploration and production blocks on offer under bidding route and release of cement and auto sales figures for September 2012. Trade deficit numbers for 1QFY13 were also released in the week where 1Q exports rose 4.3 per cent YoY and imports dropped by 2.4 per cent YoY, bringing down trade deficit by 10 per cent YoY.

Following the recent 50bp cut in discount rate, the govt has reduced profit rates on NSS (National Savings Scheme) instruments by 46-80bps with effect from October 12th.

Naveed Tehsin from JS Capital observed that the govt is offering 50 oil and gas blocks for exploration and production bidding under the newly-approved Petroleum Policy 2012. To recall, the government, alongside the Petroleum Policy 2012, has also introduced a new low-BTU gas policy and increased the gas prices for exploration and production companies.

Experts said that cement and auto sales figures for September were also released during the week. In September 2012, cement sales were up 14 per cent YoY and 14 per cent MoM, whereas auto sales were down 31 per cent YoY and 6 per cent MoM. On the KSE board, the construction material sector outperformed the market by 0.9 per cent, whereas the auto sector underperformed the market by 2.4 per cent.

Samar Iqbal, from Topline Securities (Pvt) Ltd, stated that with cut in policy rate inline with market expectations failed to provide impetus while falling rupee became the major concerns for the investors. Local bourse closed 1 per cent down as compared to last week, while volumes remained confined towards mid cap stocks. TRG, BYCO petroleum and small cap cement stocks remained in limelight. Profit taking was seen in Engro Corp as no major decision was taken in ECC meeting for gas restoration to fertilizer sector. On the contrary, investors remained bullish in FFC and FFBL as fertilizer off-take increased for the month of December.

Experts said that in spite of economic issues, power shortages and security related concerns, Pakistan market remained one of the best performing in Asia in 2012. The benchmark KSE 100-index gained 48 per cent in local currency and 37 per cent in US$ terms in the outgoing calendar year with only 9 trading sessions remaining. Major boost to Pakistan equities was provided by declining interest rates that sharply came down by 450bps in last 18 months (250bps in 2012). Resolution of Capital Gain Tax related issues, improved foreign flows in equities, rising consumerism, better corporate earnings and relative calmness on political scenario also supported the share prices.

Though Pakistan stock market has posted a handsome gain in 2012, the trend of equity public offerings at Karachi bourse remained depressed. Pakistan equity market saw only 3 IPO’s in the outgoing calendar year 2012 compared to 4 in 2011. This low level of listing is seen after a gap of 6 years while it also compares unfavorably with last 10-years average of 11 offerings a year. During outgoing 2012, a total of Rs500m ($5m) was offered to general public, HNWI (high-net-worth individual) and local & foreign institutions, which is substantially lower than Rs4.8bn ($56mn) offered in 2011.

The rally in 2012 was led by mid caps as traditional sectors like exploration and banks did not outperformed. Cement stocks were among the top performers as investor re-rated the sector by 152 per cent in 2012, on account of improved earnings. Growing demand and firm prices, kept cement makers’ margin improving. Further, reducing cost pressures due to decline in coal prices and interest rates also helped.