BRIEF INTRODUCTION AND ANALYSIS OF KSE 100

Greetings Everyone,

This Blog is initiated to assist both Local and International Investors who want to invest their money in Pakistani Stock Market or more precisely Karachi Stock Exchange which is the largest stock exchange of the country. The benchmark that we will use is KSE 100 Index which represents the performance of top 100 companies in the country. It should be noted that KSE 100 is a market weighted Index (which means that company with more market capitalization has more influence on the stock market). It should also be noted that OGDC which is the oil and gas exploration company has the largest share in KSE 100 market capitalization and therefore its movement affects the KSE 100 most. For now I believe this introduction in enough. I will be talking in detail for every aspect of Market in the coming days however at this moment let’s switch to analytical work which can help your investment decision.

MARKET ANALYSIS:

The cheapest market in the region trading at a multiple of around 7 has many investment opportunities and stock picking is not very difficult for now. As per my calculation with current macro economic situation (Pakistan achieved an Economic Growth of 4.1% in the fiscal year 2010) the market has a lower limit of 9,000 and upper limit of 12,200. That is, as long as market is near 9,000 market is certainly offering an expected return of around 30%. That also implies that investors should start booking profit as market starts approaching 12,000. It should be kept in mind that 12,200 is an upper limit this is the most where market can reach, if market faces an extreme bullish activity.

Today, on July 6, 2010 KSE 100 closed at 9,781. Which implies that investor can certainly invest in the market because market is far below from 12,200 and near to its lower limit of 9,000.

Risks to the Market: I do not see any particular economic risk to the market, but there are two non-economic risks that can hurt market’s sentiments. One is Law and Order and second is the on-going tussle between Government (and more particularly ruling party of Pakistan People Party) and Judiciary. Some corruption cases of Pakistan’s President Mr. Asif Ali Zardari are under the court hearing. About the former risk, with the successful military operation in South Waziristan, law and order situation has been improving. As far as second risk is concerned, as we all know this has the least effect on Country’s economy because political in-stability is actually a rule rather than a exception here in Pakistan. Therefore I believe unless this matter get worse will have no effect on the market.

Opportunities in the Market: With the upcoming leverage product we believe market sentiments will improve in the market and since we are the cheapest market in the region and also trading at around 22% discount to our historical average market is certainly very attractive.

Since this is my first article, it has gone a bit long but my future analysis (which would be bi-weekly in general unless situation warrant more) would not be as longer and I would be just guiding you with your portfolio management while discussing important economic and financial matters.

Now here is the list of my recommended stocks with their brief details including current price and target price. It should be noted here that these target prices are supposed to achieve within one year. In future I would also present more details regarding these individual shares.

Company Name: Pakistan Oil Fields (POL)
Industry: Oil and Exploration
Current Price: 215.58
Target Price: 246
Expected Return: 14.46

Company Name: Pakistan Petroleum (PPL)
Industry: Oil and Exploration
Current Price: 186.75
Target Price: 202
Expected Return: 8

Company Name:Attock Petroleum (APL)
Industry:Oil and Marketing
Current Price: 289.77
Target Price: 352
Expected Return: 21.3

Company Name: Pakistan State Oil (PSO)
Industry: Oil and Marketing
Current Price: 261.03
Target Price: 327
Expected Return: 25.3%

Company Name: Lucky Cement (LUCK)
Industry: Cement
Current Price: 63.46
Target Price: 78
Expected Return: 24%

Company Name: Dear Ghazi Khan Cement
Industry: Cement
Current Price: 24.43
Target Price: 32
Expected Return: 33%

Company Name: Bank Al Falah
Industry: Banking
Current Price: 9.19
Target Price: 14
Expected Return: 41

Company Name: National Bank of Pakistan (NBP)
Industry: Banking
Current Price: 64.75
Target Price: 75
Expected Return: 16

Company Name: Engro Corporation (ENGRO)
Industry: Fertilizer, Chemicals, Foods
Current Price: 176.17
Target Price: 208
Expected Return:18

Company Name: PACE
Industry: Real Estate
Current Price: 3.71
Target Price: 6
Expected Return: 62%

I strongly recommend investors not to invest all their money in just one stock or two stocks but should diversify portfolio in many stocks. This is how you portfolio performance will be based on the movement of market (which as we have already mentioned is represented as KSE 100 Index) rather the performance of individual stock. I follow these 10 stocks so you should at least invest in these 10 stocks. I selected these stocks because these are the stocks with the highest turnover (except PACE) in the market and also highly undervalued and offer very good expected return and are followed by most of the research analysts (except PACE which is not followed by many analysts but only by few). It should kept in mind that there may be many stocks in KSE 100 which may offer more expected return than this but since no research analyst and no investor can understand all the shares individually, keeping your focus on few (with keeping diversification in mind as well, i.e. few means that are just enough to diversify our portfolio appropriately) will serve our purpose.

For now, this analysis is enough. I will be discussing about these matters in future.

Disclosure: The above analysis is done to the best of my knowledge which I got from personal research. It is not possible for me to cite any references because I got this information from many resources including TV Channels, research reports and personal communication with market experts.

This material is written to guide investors in their decision making. Investors are supposed to be knowledgeable enough to understand the inherent risks in the market and use this analysis as one of the input in their decision making. There is certainly no guarantee that the above mentioned analysis is absolutely correct. This is certainly not a rocket science and forecasts may not realize.

I may have personal holdings in these stocks, in fact the stocks that I follow are usually the one in which I am personall invested.