KSE likely to observe correction in next week trading

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KARACHI: Anticipated status quo in upcoming Monetary Policy Statement (MPS) by State Bank of Pakistan (SBP) on May 16 along with uncertainty on political front would keep Karachi capital market volatile in next week trading. Karachi Stock Exchange (KSE) will likely to observe correction as investors might be opting profit taking due to early budget phenomenon, which has started to shadow the market sentiments.However, continuing foreign inflow euphoria might support the benchmark to keep KSE-100 index stable.In the outgoing week, bears ruled Karachi capital market, as it remained volatile on higher inflation and rising political heat between opposition and government while investors remained cautious and opted selling thus Karachi Stock Exchange (KSE-100) lost 426.29 points in past week.The benchmark index declined by 1.47 percent or 426.29 points to close at 28,494.54 during the week as compared to 28,921.13 points of previous week’s closing.Habib Metro Financial Services’ analyst Bilal Asif said, “Inflation numbers were well over the anticipated numbers where inflation moved-up by 1.7 percent Month on Month taking Year on Year to 9.18 percent, which fear investors”.Once again the political noise overshadowed the investor sentiment. In addition SBP is likely to declare the Monetary Policy on May 16, 2014 where majority of the analysts are perplexed over the discount rate after the recent inflation numbers. Improvement in the non disclosure agreement/net fixed asset ratio suggests, systematic inflation may not be available to push the inflation numbers. In addition M2 growth is contained at 5.83 percent YTD, indicates a possible change of discount rate.Nevertheless the interest rate differential theory tells us a complete different story all together where we are still carrying the same differential. Furthermore we are required to incorporate a possible escalation in power tariffs in the upcoming months to satisfy the donor agencies. “In such a situation we may not possibly see a discount rate cut, nevertheless with disgruntled textile sector, we may see some relief can be provided via export refinance and long term finance rates”, Mahmood said.An analyst at Topline Securities Samar Iqbal said, “Benchmark index declined 1.5 percent amid lack of triggers after the conclusion of corporate results. Volumes also declined by 29 percent to 140 milllionn shares on average (Rs 6 bn, down 27%)”.Moody’s Investors Service said upgradation in Pakistan’s credit rating can come from political stability and sustained build-up in external liquidity. Government announced its gas load management plans which would divert gas from other sectors to power generation. Packages board approved to develop a real estate project at Lahore through its 100 percent subsidiary. Government released Rs 20 billion on account of circular debt also announced an additional Rs 10 billion release to further ease the circular debt.Going forward, investors will keenly eye the political rally over weekend, MSCI semiannual review and MPC, she added.  

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