Market performance prior and post announcement of the Federal Budget FY15-16 has been relatively healthy. However, can the KSE continue its momentum going in the holy month of Ramadan from today, which brings with itself shorter trading hours. Historical distribution of the past 20 years (Ramadans) suggests a 65% probability of a period gain (35% probability of a period loss) with expectation of a period gain of 6.31% and expectation of a period loss of -0.98%. Statistically speaking, our findings suggest that on 13 occasions, the benchmark KSE-100 Index has yielded positive gains while in 7 instances, it has returned negative returns. Furthermore, on 6 occasions, average trading activity during Ramadan has compared favorably against the same which took place during that particular fiscal. However, while history is skewed in favor of a period gain, a high standard deviation of 9.02% of our sample period returns, lack of positive triggers for both index heavy weights viz. 1) Banks and 2) Oil & Gas sectors, and slowdown in construction activities during Ramadan impacting the Cement, Steel & Allied sectors, a temporary correction cannot be ruled out. That being said, we also believe that trading activities are likely to remain healthy from a medium term perspective in the backdrop of a stable economic outlook and as investors continue to realign their portfolios post Federal Budget FY15-16.

History suggests impressive volumes in first ten days: Historically, trading activity remains brisk during the first ten days of the holy month as evident by the chart below. On 9 out of 20 occasions, the markets’ average volumes during the first ten days have fared well against the second ten days and the final ten days of Ramadan. Moreover, the same trend during the past 5yrs further improves where on 3 occasions average volumes during the first ten days have remained the highest. We believe this trend can continue in the current Ramadan given an allegedly robust liquidity profile of market participants. Moreover, liquidity available with investors can also drive volumes during the second set of 10 days, in our view.

  The US is now a police state

In Ramadan the index moves with low volumes: Conversely to average volumes, which on majority of the occasions have clipped away as Ramadan has progressed over the past 20yrs, Index movement during Ramadan has peaked during the final week, 10 (ten) times out of 20 (twenty) observations. However, in 4 (four) of those 10 (ten) cases, the KSE-100 Index gained with higher volumes, which suggests that in 6 instances the index registered higher return with relatively lower volumes. In this regard, we believe Index performance during the current holy month can likely suffer given lack of positive triggers for both index heavy weights viz. 1) Banks and 2) Oil & Gas sectors, and slowdown in construction activities during Ramadan impacting the Cement, Steel & Allied sectors. Moreover, the market has gained 1,617.82pts or 4.9%MTD, therefore, a temporary correction cannot be rule out.

Written by Asad Siddiqui

Comments