An investor, who may have put two million rupees in stocks at the beginning of the year 2012, ought to have theoretically added a million more to his wealth.
Equity values have individually seen sharp rise in prices. There are more billionaires in the country today than ever before and a great majority of them have to thank the stock market for their fortune.
Setting aside the debatable issues relating to the constitution of Karachi Stock Exchange index of 100 shares, the fact is that the benchmark has provided equity investors stellar return of 48 per cent in this calendar year.
The last trading session of the year would take place today (Monday) following which brokers, dealers and investors would have all the right reasons to cheer. They have lived through one of the best years in recent memory. The KSE-100 index galloped by an incredible 5,545 points during the year, starting out at 11,347 points at the beginning of the year and slated to end at around 17,000 points. The index has long since crossed its all-time high. Propelled by the latest 50bps cut in the DR to 9.5% and release of US$688mn in CSF flows, the KSE-100 gained 2% in Dec’12 to bring 2012 gains to 49%. While the year started off with relations with the US at a trough (closure of NATO supply routes), gradual improvement saw eventual release of pending Coalition Support Funds. On the domestic front, robust share price performance arose on a confluence of positive factors including strong corporate results, monetary easing (DR cut by a cumulative 450bps since Jul’11) and capital gains tax reforms, the latter resulting in the highest average daily volumes (135.6mn shares) and value (US$49.78mn) in 3yrs. Despite the PkR depreciating by 8.42% vs. the US$, foreign investors remained key players – net FIPI in CY12 came in at US$130mn.
The textile sector provided an unbelievable return of 99 per cent in 2012.
Analysts list many reasons for the rejuvenation of the textile sector. The growth of foreign demand and the weakening of rupee are said to be biggest factors. But of equally important to most corporate, mainly in the textile sector, is the heavy plunge in their financial expenses.
That has direct relationship with the cost of borrowing.
As the monetary policy eased with interest rates cuts, corporates managed to retain money that they paid in on debt serving and even retire huge loans. The benefit has travelled down to the bottom-line of many highly-leveraged corporates in all sectors.
While the large cap stocks such as those in the oil and gas exploration and banking posted a slower growth, cement stocks were the top performers this year, with the sector giving out an aggregate of a mind-boggling 152 per cent return during the year.
Investors re-rated the sector on account of improved earnings, constantly growing local and foreign demand and firm prices.
“All of that went to improve margins of cement producers. Further, reducing cost pressures due to decline in coal prices and interest rates also helped.” says a sector watcher at a large brokerage house.
In regard to the phenomenal rise in prices of equities, Arif Habib, former chairman of KSE argues that in the low interest rate scenario there is ease of valuation, which, in turn, raises equity values. The demand for risk-free return investment avenues decreases and investors turn to stock exchanges in search of higher returns.
For corporates, the borrowing appetite increases with lower interest rates. Habib says that with low interest rates, consumer is comfortable with cash, which raises demands for goods and help fast moving consumer goods companies and others post a healthier top and bottom line.Yet most people believe that there is the need to bring bigger companies and bigger floats into the market and to expand the investor base. The number of companies registered with the Securities and Exchange Commission of Pakistan exceeds 60,000. Yet the number of listed companies is around 573. Only three companies made Initial Public Offering (IPOs) during 2012 to seek listing.
A major event this year was the promulgation of the Stock Exchanges (Corporatisation, Demutualisation and Integration) Act, 2012 on May 8. It stipulates that the 200-member strong stock broker fraternity is about to see an end to its 60-year control of the market.
Most people believe that the government squandered the opportunity to gain exceptionally high prices for stocks in state-owned enterprises (SoEs) through privatisation.
“In a year which saw a booming stock market with investors returning in droves, the government could have obtained more than fair values for its assets, if the shares were offered through the stock exchanges”, says a market participant. But stalled since the last five years and the government speaking of its resolve to resume the privatisation process, it never was a priority. The proceeds from selling a part of SoEs would also have assisted the government in raising much needed dollar reserves and retire its mounting borrowings from the central
And now back to the market. At the height of 17,000 points investors are bound to feel their heads spin. So would there be a pull back? “No one is at the moment giving a thought to that for they want to throw caution to the wind and let good times roll.” says a market watcher.
There may still be a long way to climb up as most brokers would make investors believe. But in case of a sharp plunge, it would be unfair to blame the broker for his livelihood depends on selling optimism. The rule of ‘caveat emptor’ (buyer beware) prevails.