KSE index performed well

 

KARACHI: The Karachi Stock Exchange’s benchmark 100 index performed well in 2012 and recorded a growth by 5,558 points, or 49 percent, to close at 16,905.33 points on December 31, against 11,347.66 points on December 31, 2011.
Hasnain Asghar Ali, chief operating officer at Escorts Capital, said that the KSE proved that it is still one of the best equity markets of the world with impressive gains, dividend yield and consistency of improvement in policies. “Despite struggling economy, energy shortages and the rupee depreciation along with the poor law and order situation across the country, the KSE-100 index went up by 5,596 points to 16,943 points in the calendar year 2012, showing an increase of 49 percent year-on-year, he said.

The upward movement of the index began after Finance Minister Hafeez Sheikh announced alteration in the capital gains tax (CGT) collection in January 2012, which revitalised investors’ confidence across-the-board. Moreover, earnings and payouts have been historic along with decline in inflation to 7.36 percent for the first half of the financial year 2013, followed by cut of 250 basis points in the discount rate to 9.50 percent.

It was the cement sector where the real rally came from and followed by textile and foods. The cement sector reported a surge of 151 percent, translating into an increase of 102 percent against the KSE-100 index. Other outstanding sectors included textiles with 100 percent increase and food sector 74 percent. Notable companies have been KOHC, FECTC, CHCC, MLCF, PIOC, CML, KTML.

The investors who took exposure in the cement stocks at the beginning of 2012 have more than doubled their investment. According to a report of Topline Research, cement stocks at the Karachi bourse rallied and posted an abnormal return of around 150 percent in the calendar year 2012. Around 21 companies, dominated by energy and banking firms, outperformed the benchmark KSE-100 index during 2012. Improved profitability of the cement sector due to record margins coupled with some improvement in the local demand made the investors’ darling in the outgoing year.

Besides improvement in the sector dynamics, sharp decline of 450 basis points in the policy rate during the last 18 months also improved earnings outlook for the cement companies as cumulative debt of all listed companies is approximately Rs98 billion ($1 billion).

“Thus, with improved profitability, there is an expectation that the cement companies will retire their loan earlier and pay decent dividends,” according to the report.

The local cement demand would increase to 25.50 million tons in FY13 against 24 million tons in FY12. However, exports would remain around eight million tons lower than the last year level of 8.5 million tons due to surplus capacity in the Middle East.

Though Pakistani stock market posted a gain of 49 percent (38 percent in dollar terms) in 2012, the trend of equity public offerings at the Karachi bourse remained depressed with the issuance of only three initial public offerings (IPOs).

“This low level of listing is seen after a gap of six years, while it also compares unfavourably with the last 10 years average of seven a year,” said an analyst at Topline Research.

A small amount of Rs500 million was raised in 2012. Two companies that offered the IPOs were oversubscribed that included TPL Trackker and Aisha Steel. Next Capital that was related to financial service received comparatively low response.

TPL Trackker was technology-related, while Aisha Steels was from industrial concerns. TPL public offer was over subscribed by 1.2 times, whereas Aisha Steel was oversubscribed by significant 2.7 times.

Khurram Shahzad, head of research at Arif Habib Ltd, said the capital gains tax has affected the volumes in the stock market, which were not encouraging for the companies to issue new IPOs. “There were several issues, including documentation and becoming accountable to the board and stakeholders and there was no incentive on tax for the companies,” he said.

Now the Securities and Exchange Commission of Pakistan (SECP) was taking positive steps and volumes were raised that would invite more IPOs in 2013, he said, adding that the market environment is improving through corporatisation.

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