WEEKLY REVIEW: Unchanged discount rates keep KSE in the red

KARACHI: The Karachi stock market faced bearish trading sessions during the week due to State Bank of Pakistan’s move to keep the discount rates unchanged in the monetary policy review, which forced investors to offload their holdings.

The Karachi Stock Exchange (KSE) 100-share index shed 209.10 points or 2.2 percent to close at 9,455.15 points as compared to 9,664.25 points of the previous week.

Other major factors that influenced the market activities negatively included investors concern over high inflation, high leverage cost and continuation of the unchanged rates of National Savings Schemes up to December 31.

The turnover was recorded at 199.77 million shares as compared with 450.99 million shares of the previous week, reflecting a decline of 55.70 percent.

“The Index lost 2.6 percent on the opening day of the week on back of an unproductive Firiends of Democratic Pakistan meeting in New York, said analyst at JS Research Market Mustafa Bilwani. “SBP also announced the Monetary Policy Statement this week, deciding to keep the policy rates unchanged at 13 percent.”

The wait and see approach was due to the consideration of inflationary risks, resolution of electricity tariff, timing of foreign inflows and in turn risk related to fiscal consolidation, he said and added that the bank also kept cash reserve ratio unmoved at 5 percent.

The prime minister this week approved increase in power tariffs by 6 percent as part of the agreement with the International Monetary Fund, World Bank and Asian Development Bank. The government plans to raise tariffs further in January and then again in March 2010.

Analysts believe that this move would help minimise the risk of circular debt in the future.

Furthermore, petroleum prices were reduced in the range of 3.6-6 percent for October to adjust with the decline in the international oil prices. This should help offset inflationary expectation, he added.

Foreigner’s continued to be on the buying side this week, as they bought shares worth $37 million while selling shares worth $23 million, resulting in net buying of $14 million. Interestingly, National Clearing Company of Pakistan Limited from October 1 has started releasing further break up of investment portfolio figures according to which in the first two days of the month mutual funds and individuals were net sellers of $2 million and $3 million, while companies bought shares worth $5 million.

“Non-availability of leverage products, fall in local oil prices, rumours on RBS and MCB deal approval by SBP and institutional profit-taking kept the market in the red zone, said analyst at Shahzad Chamdia Sec Ahsan Mehanti. Link...