LAHORE - The worsening law and order along with the continued uncertainty in world capital markets kept investors on the sidelines at the KSE during the last week. However, the KSE 100-index, after three consecutive weeks of decline, showed signs of meagre recovery, increasing by a nominal 0.2 percent with average daily volumes dipping by 1.6 per cent WoW to 36m shares. According to market experts, after the US credit rating fiasco, fears of a double dip recession continue to haunt investors globally as they await Feds decision on another round of quantitative easing. Amid these fears, rating agency Moody cut Japans long-term sovereign debt rating, citing concerns about countrys deficit and borrowing levels. Continued uncertainty in global markets and the unpleasant law and order situation locally has kept the foreigners at bay as they bought shares worth only US$1.0 million Furqan Ayub, a stock market expert, said that during the week, the dollar hit a new peak versus the rupee in the interbank market on the back of major oil related payments. On the export front, textile exports continued their upward momentum as they grew by 14.22 percent YoY in July 2011 to stand at US$1.1 billion. Moreover, NFDC released total fertilizer offtake numbers for 7M2011. Fertilizer offtake stood at 4.4 million tons in 7M2011, down 4 percent YoY. Ahsan Mehanti said that stocks ended higher in the earning announcement sessions. He said that this week was led by blue chip oil, fertilizer and banking sector scrips on strong valuations. Recovery in global stocks, recovery in international oil prices and renewed foreign interest in blue chip scrips played a catalyst role in bullish sentiment at KSE this week despite choppy sessions on concerns for security situation. Key results that were announced during the week were Indus, LOTPTA, ICI and Packages. Indus Motor announced an EPS of Rs34.9 for FY11, depicting a decline of 20 percentYoY. However the result was 25 percent above market expectations, mainly owing to improved cost efficiency and lower effective tax rate. Lotte Pakistan PTA Limited reported an EPS of Rs2.44 in 1H2011, up 70 percentYoY on the back of impressive international PTA-Px margins. ICI posted a decline in earnings of 16.4 percentYoY to Rs7.01 per share in 1H2011, while Packages reported a loss of Rs2.48 per share in the same period. Noted expert Muhammad Sohail pointed out that the time to buy is when theres blood in the streets. The global stock market crisis triggered by fear of US economic slowdown and Europe debt crisis coupled with ongoing killings in Karachi has made local stocks cheapest in last two and a half year. The fear factor is still prevailing amongst the investors in Pakistan equities and we believe that the market has discounted most of these uncertainties. Thus when every body seems negative, we are bullish on the Pakistan market. Investors in short run may not make money as most of the fund managers are anticipating more selling by foreigners. But in the medium term, we believe, investors buying here will make above average profit on their investment. At current prices, Pakistan market trades at forward PE of 5.3 (ex OGDC), PBV of 1.4 and offering dividend yield of 10 percent (ex OGDC). In terms of valuation Pakistan is cheapest since early 2009 when equities collapsed post infamous price floor due to dumping by foreign funds. After a gap of two-and-a-half year, average dividend yield (based on Topline sample ex OGDC) has reached 10 percent on next years estimated profits. And there are many stocks (see table) offering dividend yield of more than 1-year T-Bill rate which currently is 13.4 percent. With global market fall and ongoing killings in Karachi, the valuations look good for investors want to invest in high dividend paying defensive stocks. In our note dated August 08, 2011 we highlighted three defensive stocks namely FFC, Hubco and PTCL. Since than these stocks have outperformed the benchmark index by 2-15 percent. September 10 &11, 2011 will announce good payouts whose book closure dates are likely in the month of October. In case of POL we expect this year final dividend of Rs20-22 per share (making total Rs30-32 per share) and next year dividend of Rs35 per share. Similarly, for NRL we expect company to announce a final cash dividend of Rs30-35 per share, while we expect the company to payout around Rs37 per share next year.