The articles written on this blog are based on my personal analysis. The securities target prices are for information only and is not an offer to buy or sell. The reliance on these recommendations are not guaranteed as they are based on my personal assessment as a Financial Analyst. My analysis is based on Business TV Channels, Business/ Financial websites, and from Finance books. All views that I presented are to the best of my knowledge and I invest in Stock Market with this analysis in mind. While the information contained herein is from sources believed reliable, I do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time.

Friday, January 7, 2011


Market is just not looking behind, now heading towards 12,500 mainly led by rally in oil and to some extent fertilizer stocks. As you, all know this year-end target was expected to be around 11,200 but market closed this year 600-800 points higher than this target. The main reason for this is that market just did not take a breather and it is not clear exactly when it will take that breather. Let me emphasize one very important point, the market and its constituent stocks have now reached a position where stocks picking has become more important than index level. This is because many heavy weight stocks are overvalued and offering a very low dividend yield. For example, OGDC which is the largest heavy weight of KSE 100 and has a weight of around 25% is now trading at a P/E of 12 and dividend yield of just 3%. The case of POL (another heavy weight) is also not very different although still not as overvalued as OGDC.


If one considers a FY 12 earnings then P/E of market is just around 7-8 range and if you exclude OGDC from index it comes in 5-6 range whereas regional level is around 12-13. However, economy of Pakistan has some fundamental problems like low tax to GDP ratio, high fiscal deficit that causes high inflation, high interest rates, poor law and order situation, and political instability. Because of these reasons, Pakistani market is expected to be trading at a discount from regional P/E. However, given the low interest rates environment in West, and flooding of this “cheap money” to emerging and frontier markets and given the profitability growth of main blue chip companies, there is still a lot of upside. This year market range is expected to be 10,600-13,700, which means an upside of around 15% is still present from current level. That off course excludes dividends. Therefore, you can certainly make more than 15% if you choose your stocks carefully and pick dividend-yielding stocks, the point that I am going to discuss below.

What are the stocks to be picked? Make it simple; just pick good dividend yielding and fundamental stocks. Are there any? Yes, there are and I will be informing about them very soon. I have already discussed two stocks in my previous posts namely ENGRO and Attock Cement, both although don’t have a high dividend yield but are fundamentally strong and I expect them to provide more than 15% (Please read my previous post for further detail about them).


The biggest threat is tightening monetary stance. With expected GDP of just 2-3%, tightening monetary stance of State Bank is just looking as horrible as it can be. CPI inflation is now hovering around 15% and there is a very strong change of further upsurge if Government is not able to reduce its borrowing (fiscal deficit is now expected to reach 6% of GDP, and this is with tax to GDP ration of just 8%), and it also needs to improve the supply side to manage food prices. Our import bill is around 40% composed of oil and if oil maintains its upsurge (currently at 26-month high of 92-94$) we would be facing an “imported inflation” in future as well. The rise in interest rates in response of rising inflation is by far the greatest threat to market since it can hurt corporate sector profitability and growth through its effect on Finance Cost.

Another threat is law and order. Recently, Governor of Punjab Salman Taseer was assassinated and this assassination has created a tense situation not only in Pakistan but also in International community as this assassination is linked to ‘religious matter” (regarding blasphemy laws).

As I stated many times political instability is a rule than an exception here in Pakistan, however one needs to cautious of what is happening out there.


The market range for CY 2011 is expected to be 10,600-13,700. It is important now to concentrate more on individual stocks rather than an Index level. I would be discussing more individual stocks very soon.

No comments:

Post a Comment