CAN YOU LOSS ALL OF YOUR INVESTMENT IN STOCK MARKET?

I have seen many people showing a concern that they have heard the stories of investors who have lost all of their investment in stock market i.e. loss of -100%. For them stock market is all about losses. People need to understand that the true question to be asked is not how much they have lost but it should be how did they loss. What strategy they were using? What investments they were making?

In order to elaborate my point further, let me tell you three primary risks through which investors loss all of their invested capital:

1. The company in which you invested gets bankrupt.
2. Use of leverage (loan).
3. Counterparty risk.

The first risk can best be explained through an example. Suppose you have 100,000 PKR and you invest all of your money in a hypothetical company Best Company Ltd. After one year, the company gets bankrupt and you lost your entire invested amount. Now, that investor may complain that market is a “bad” place for investment but the thing that we need to realize is that it was the company that was “bad” and not the market. There are 100 companies in KSE 100. Can you loss all of your investment if you invest 1000 in each company (1000*100= 100,000). Can 100 companies go bankrupt? They surely can but the probability of this event is almost negligible. Put it simply, if you divide your investment in many companies (say 15) and even if one of them gets bankrupt you still are safe and lost only 6.67%(1/15) and given a fact that market average return is around 20-25% you still must be making a good amount of money. There is no chance that you can loss all of your investment if you diversify your portfolio.

The second risk can also be explained best through an example. Suppose you have PKR 25 and you borrow PKR 75 from your broker so you invested capital is PKR 100. Suppose market goes down by 25% and as a result, your invested capital lost 25% as well meaning you invested capital now decreased to PKR 75 now. At this time, your broker will take his money back or ask you to invest additional capital and if you do not have additional capital he will surely take his money back. What do you have now? Actually, you have lost all of your investment. Even though market lost just 25% but you lost 100% of your amount. Why? Because you used the leverage. If you had not used the leverage you would have lost only 25% and your invested capital would have been PKR 18.75. As you can see, the sole reason of “100% loss” was leverage. If after this loss, you say, “Market is bad” then you are wrong. The true comment should be “leverage is bad” or more appropriately “you did not realize the risk of using leverage”.

Now we come to the third risk and this is the risk most relevant to an emerging country like Pakistan. Counterparty risk means your broker do not have an ability or intention to pay back your money. These frauds have occurred in KSE (although KSE has paid back some of the lost amount to investors) in past, however rules and regulations are now being enforced and the advent of “CDC” is the proof of this. In fact, stock market has become the most heavily regulated industry of this country and this means that counterparty risk has been minimized. However, in order to avoid this risk investor should open his account in a renowned brokerage house and which has the history of best ethical practices.

After reading this article if any one tells you that he has lost all of his investment in stock market you should ask these three questions of him:

1. Did you invest majority of you investment in just one company?
2. Did you use leverage?
3. Did you have an account with a small brokerage house?

If the answer of any of these questions is yes, then whose fault is it? Of market or of investor? Believe me 99% of investors who have lost all of their investment did not diversify their portfolio, or did use leverage or did not have enough knowledge about their broker.

Good luck with your investments!

VOLATILE MARKET PROVIDING OPPORTUNITIES

KSE 100 after having a very poor month of February recovers very quickly. Just a month back, market was trading at 12,700 level and in no time it reached 11,100 level which is a decline of around 12.6%. However, in just two session of this week market has jumped from 11,100 to 11,600, an appreciation of 4.5% in just two days shows how volatile our market is.

As I have stated many times, I am a fundamental investor and for me the most important thing is "Corporate Profitability" so anything that impact it either directly or indirectly causes a concern for me. However on-going political issues did hurt the market but I continued to buy blue chip stocks and my strategy paid off as market finally rebounds. I am in no way saying that political issues should be neglected completely but we need to know the true "intensity" of these issues and how and whether they are linked with the market or not.

Rising oil prices is something concerning me a lot, a county like Pakistan can not afford this level of oil prices (hovering around 110-120), one needs to keep a close eye on oil prices as some analysts are predicting that it may even touch 200$/barrel which could be devastating for a country like Pakistan already going through an economic slowdown with high inflation (which we call as stagflation).

There is one good news in the market, actually this is the news that helped the market to rebound, official date of leverage product has been announced and it is 7th March, 2011.

Good Luck with your investments!

PSO: ANOTHER GOOD RESULTS

Middles East crisis has impacted market but the most important aspect of market "Corporate Profitability" is still there. Once the issues get settled down in Middle East, market will show its strength again.

PSO, which occupies the largest share of "Oil Marketing Sector" has posted its result. Profit is PKR 7.13 billion (EPS: 41.58) as compared to PKR 5.08 billion (EPS: 29.64) over the corresponding period last year, which translates into an improvement of 40% however, this includes a one time reversal of turnover tax which GoP reduced from 1% to 0.5%, the impact of this reversal is around PKR 23.46/share which means if we deduct this reversal then EPS becomes PKR 18.12. But the result is exactly as per expectations and this is what counts. The company also announced an interim dividend of PKR 5 as well. Full year EPS is expected to be PKR 71 with accumulated dividend of PKR 10.

The good news is despite the healthy results the stock of PSO is sliding downwards because of overall market correction as discussed above. The relevant data is as follows:

Current Price = 268

Target Price = 340-350

P/E = 3.77 (if you include one time tax reversal then P/E = 5.6)

Dividend Yield = 3.73%

Total Expected Return = 27% + 3.7% = 31%

KAPCO has posted its results for 1H 2011. The resutls are exactly as per expectations but before proceeding to results just see what I posted on Jan 10, 2011.

"The company pays out all what it earns, however due to circular debt issue, it is not expected to continue this 100% payout for the next year but still the payout is expected to be much better than most of the stocks in KSE 100. Its next year expected EPS is 7.5 - 8, and dividend is expected to be PKR 5.5 - 6 which means payout of around 75%. The current price of share is around PKR 44 and the target price is expected to be PKR 52, so the P/E of share is 5.9 (market has a P/E of around 8), dividend yield is around 12.5% and an upside of 20%. I think it is a good share to buy right now."

As per the result, company earned PKR 3.85 billion (EPS: 4.37) as compared to PKR 2.72 billion (EPS: 3.09) over the same period last year. The results improved by 61%, but this improvement was expected as can be seen above that full year expectation of EPS is 7.5-8 and after the half yearly results, we can see that company can achieve these expectations. However, there is a good news about dividend as well as company announced an interim divident of PKR 3 which means pay out of 69% not bad given the fact that company is having exposure to circular debt issue. There is one more good news, company's share is still trading at around PKR 42 so what you need to do is grab this share as soon as possible. The relevant data is as follows:

Target Price = 52

Current Price = 42

P/E = 5.25

Divident Yield = 14%

Total expected return = 23.8%+14% = 38%

DGKC: POOR RESULTS BUT NOT A BAD COMPANY

There are just four profitable cement companies in KSE, namely:

1) Lucky Cement

2) Attock Cement

3) Dera Ghazi Khan Cement (DGKC)

4) Fauji Cement

Today, I am briefly discussing DGKC. It has posted its result for 1H 2010 and earned PKR 192 million (EPS: 0.52) which is 59% lower than last year earnings of PKR 470 million (EPS: 1.29). The results are below expectations and its share is now showing a declining trend as you can see in graph.

However, we need to keep in mind that increase in fuel cost, winter season and floods have deteriorated the earnings of cement sector. As we all know coal prices are now getting stable, we are now at the end of winter season, and reconstruction activities in flood affected area have started. All of these things showing a positive and improved performance in 2H 2010, therefore I would advice all my readers to accumulate position in DGKC.

Company has also announced 20% right shares at PKR 20. Most of the analyst are not that bearish about this stock in the long term and current bearish trend is just an opportunity to grab this stock at lower levels. However, the stock might go even further down so investor should accumulate the position gradually. Research houses are giving a target price of around 32-46 so minimum return of 25% is possible from current level of PKR 24.

RAYMOND DAVIS ISSUE: COULD BE DANGEROUS FOR MARKET

Even though I consider myself a fundamental investor and usually don't get into panic or confusion on small political issues but I think the issue of Raymond Davis is not that "small". Pakistani Government is facing a dilemma, if they let go Raymond then they have the face the strong demonstrations and protests from opposition parties especially religious parties. Media off course will take the side of opposition as well and if they do not let go Raymond then their relationship with their biggest donor (who are also supporting stock market since they are leading the market for six months or so) might go to jeopardy. I guess the implications of any decision of government are very uncertain but unpleasant for sure. On a long term basis, satisfying America either through a release of Raymond or convincing them to face the court might be a better option. I think it will not be possible for market to appreciate under these conditions so investors should invest with caution at this moment.

ENGRO: RESULTS FAR BETTER THAN EXPECTATIONS

ENGRO has announced its results for FY 2010; the company earned PKR 6.79 billions which is 78.36% higher than the earnings of previous year. EPS for 2010 is PKR 20.72 as compared to last year of just PKR 12.24. Company also announced a final dividend of PKR 2 which translates into a total accumulated dividend for the year 2010 of PKR 6. Company also announced 20% bonus shares as well.

As I posted earlier that company was expected to post an EPS of PKR 18 but company managed to post 20% more than expectations plus company also announced surprise bonus shares as well. The company is expected to perform well; some research houses are quoting a target price of PKR 280, which means an appreciation of around 30% is possible from current level of PKR 216.

LUCKY CEMENT: ANNOUNCES RESULTS AS PER EXPECTATIONS

Lucky Cement (LUCK), my most favourite company in cement sector has posted it's result for 1H 2011. The company made an after tax profit (PAT) of PKR 1461 million and an EPS of PKR 4.52 as compared to last year EPS of 5.90 for the same period which means earnings have declined by 23%, however, this decline was already expected in market as we all know dispatches have been affected very badly because of floods. Situation at the export front is not that worrisome right now. Prices of cement are not showing any declining trend which is also a good thing for cement sector. Rising coal prices are a major threat to cement sector and one needs to keep a close eye on it.

The company is expected to post an EPS of PKR 11 and dividend of PKR 5 for full year 2011. With the current price of PKR 70, company is trading at an attractive P/E of 6.4 and dividend yield of 7% is also not that bad. The target price of Lucky Cement is quoted at around PKR 85 which means capital gain of 21% is possible. Total expected return amounts to 7%+21%= 28%. I regard it as a least risky and the most attractive scrip in cement sector right now.

ATTOCK PETROLEUM: AS PER EXPECTATIONS RESULTS

Attock Petroluem probably the strongest company in the Oil & Marketing sector right now has posted its half yearly results ended on Dec 31, 2010. The PAT is 1.743 billion which translates into EPS of 25.22 which is 17% higher than EPS of 21.55 posted last year for the same period. The company also announced an interim dividend of PKR 11.5.

The company is expected to post an EPS of PKR 50 for full year with accumlated dividend of PKR 30. Considering the fact that APL is trading at PKR 380, it's P/E is 7.6 with impressive dividend yield of 7.9%. The target price of company is quoted at around PKR 420 which means capital gain of 10.5% is possible from current levels. Total return that could be achieved is 7.5% + 10.5% = 18%. I believe it's a good stock to buy and as you can see in the graph company has been doing good for the last 30 days and currently due to the correction is sliding downward which is a good opportunity to grab this strong scrip.

ATTOCK CEMENT HALF YEARLY RESULTS: BELOW EXPECTATIONS

Attock Cement has posted it's half year result ended Dec 31,2010. The PAT is 235 million and EPS is 2.72 which is 62% lower than same period EPS of 7.2. The result is disappointing and company target price has now reached 72 which earlier was given around 80-90 range. Rising energy cost along with declining brand premium has caused this decline. The company is expected to perform better in 2nd half though as coal prices are now going down from it's peak of 130$/ton and given the fact the winter season is now ending further drop is possible in coal prices which will help cement manufacturues. Remember ACPL has the strongest balance sheet in cement sector i.e it has a lowest debt. Because of disappointing results share price has decreased but company is still worth investing and investors can get this share at lower prices. The expectation for FY 11 EPS is now revised, as now the company is expected to post an EPS of PKR 7 (previous expectation was PKR 13) along with dividend of PKR 5. With the current price of 65, dividend yield is 7.7% and P/E is 9.3, not that bad still.

FAUJI FERTILIZER: OFFERING 16% EXPECTED RETURN

Fauji Fertilizer (FFC) is one of the giants of KSE 100. The good thing about it that it belongs to a non-cyclical industry. However, even better thing is that it pays out all what it earns it the form of dividend. Yes, it usually has a 90% payout ratio. It is also the biggest company in this sector after ENGRO. However, it is not directly comparable to ENGRO because ENGRO is a conglomerate which predominant business is fertilizer.

Like it peers, FFC is also facing a gas curtailment issue. However, manufacturers are responding this issue by raising urea prices so no one is expecting any great impact on its earnings.

The company is expected to post its results for annual year 2010 (the companies in this sector present their financial statements on calendar year basis) somewhere between Feb-March. The expected EPS is PKR 16 with the cumulative dividend is expected to reach PKR 15. With the current price of around PKR 150, the company is trading at a P/E of 9.4 and a dividend yield of 10%. As you can see in the graph, the company has performed well in the last few days, it is due to this sudden upsurge the dividend yield and P/E is not looking as attractive (market is trading at a P/E of 8 – 8.5). However, investors should watch this share carefully and once they got an opportunity to buy it somewhere in the range of 130-140, they should buy it. The analysts are giving a target price of around PKR 160, which means an upside of 6.6% is achievable from current levels. 10% dividend yield and 6.6% upside means total expected return of 16.6%. Not that bad even at current levels. However, many analysts are expecting a correction in the market so if the price of the share goes down in future investor can get an expected return of more than 16.6%.

MONETARY POLICY: NOT USEFUL BUT HARMFUL

The CPI inflation for the month of Dec 2010 is recorded as 15.46%YOY slightly decreased from 15.48%YOY recorded on November 2010. Analysts are now eying on monetary policy statement to be announced on 29 Jan, 2011. The expectations are that central bank will keep its restrictive monetary stance by increasing the discount rate by further 50bps, which means discount rate will reach 14.5%.

However, what I want to say is that in every monetary policy statement, the reason of restrictive monetary stance is mainly attributed to heavy government borrowing. However, we know very well that government has not responded at all, in fact, government borrowing has now reached PKR 459bn for this year, which is 100% higher than a previous year. The purpose for which restrictive monetary stance was adopted has not been fulfilled so why keep raising interest rates and slowing growth of “efficient private sector”? Surely, central bank needs to understand that discount rate as a tool has not been effective in curtailing government borrowing but it is certainly very effective in slowing economic growth so why keep using it and slowing our already weak economic growth. Central bank’s current stance is aggravating our economy.

In short, discount rate as a tool for curtailing government borrowing has not proved to be “useful” but it is certainly proving to be “harmful”.

There is one more way for central bank that if it really wants to make it hard for government to borrow than it should now increase the discount rate by 100-200bps. This will give a much stronger message to government. Increasing the discount rate by mere 50bps in every monetary is just not working and this is something that we all have seen, government is just not taking it seriously. So, if central bank is again thinking to increase discount rate in next monetary policy than it should increase it by 100-200 bps or either not increase it all because increase of 50bps will not serve anything as I have discussed above.

HOLDINGS AS OF JAN 14, 2011

My Holdings as of January 14, 2011 are as follows:

Stock	Proportion
APL	10%
BAFL	4%
DGKC	8%
ENGRO	8%
FAUJI CEMENT	2%
HUBCO	10%
ICI	10%
KAPCO	11%
PACE	27%
PSO	8%
SHELL	1%
SILK BANK	1%

You may be wondering why do the small cap stock like "Pace Pakistan" is the heavy weight item of my portfolio. The reason is that I am a young investor and can afford to invest in small cap stocks which if invested after due and dilligence can provide a huge returns over a long term. Secondly, I shared my portfolio holdings with you just to give you some idea. I am not suggesting at all that you should have a portfolio like mine since it depends on many factors like your age, income etc.

REDUCTION IN PETROLEUM PRICES: POOR ECONOMIC DECISION

Politicians are happy that they forced the government to withdraw its decision to increase petroleum prices and government is happy that they get their majority back.

The fact is, it might be a “popular decision” but it is a very poor economic decision and will have negative consequences on the economy. To understand this point we need to see the 2008 crisis. Musharaf’s popularity was decreasing, elections were near and oil prices were recording new highs once reached around 147$ per barrel and Musharaf’s regime decided not to pass on the increase to consumers just to save their deteriorating reputation. Fx reserves depleted and this was the time when rupee started to depreciate from 60Rs/dollar, fiscal deficit rose, inflation rose and stock market crashed. What happened was that government just did not pass on the oil prices to consumers and it did not have enough finances to back this decision.

Now consider the current scenario, the popularity of PPP (and its allies) is decreasing, and when MQM decided to quit government mainly because of current increase in oil prices government lost its majority in the parliament. So far, government is not able to increase taxes, inflation is increasing so does the interest rates, fiscal deficit is increasing, and the last but not the least government borrowing is increasing at an alarming rate and it is the government borrowing which is the root cause of all issues. One thing is quite clear here, government is almost in the same scenario and ironically, government decided exactly what a Musharaf’s regime decided just to retain their majority in parliament. The question is how will government finance this subsidy? International oil prices are hovering around 90$ (at their 26 month high) and government had to pass on this increase in prices to consumers but they decided not to do so. Now they will need to borrow more (as they are already borrowing more causing high inflation and high interest rates) from SBP, which will increase already high inflation (around 15.8%) and we could see what we have seen in 2008. As per Mr. Naveed Qamar (Petroleum Minister) if oil prices remain at current level then government will now have to suffer a loss of PKR 5 billion per month. Given the fact that government has already borrowed 250 billion so far (increasing at an alarming rate of 100% YOY) this decision will now compel to borrow for this “Petroleum Subsidy”. I think this will also hurt Pakistan’s reputation in the eyes of foreign donors and foreign investors (especially sovereign debt investors) as well. Remember government has not been able to bring any tax reforms, this subsidy is just not bearable. SBP will now print more money because of increased borrowing from government, which will be more inflationary than the impact of increase in oil prices. Remember, our fiscal deficit is now expected to be around 6% for FY 11 but some analysts expect that it might end up much higher.

The only thing that is different from 2008 crisis is strong exports, low imports, increasing remittances and IMF support. In other, words our current account is not as bad as it was in 2008 because of above mentioned issue.

I believe this decision in just not sustainable and government will not be able to keep this subsidy and will pass on it to consumers in future in a more efficient manner i.e. it will not remove it suddenly but incrementally.

KAPCO: IT IS DEFENSIVE, HAVIING A GOOD DIVIDEND YIELD AND FUNDAMENTALLY STRONG

KAPCO (Kot Addu Power Company), the electricity generation company, certainly belongs to a very stable, non-cyclical industry. Even though it is now facing a problem of circular debt but given the fact that its trade debts are secured by Government of Pakistan this problem does not look very worrisome right now.

The company payout all what it earns, however due to circular debt issue, it is not expected to continue this 100% payout for the next year but still the payout is expected to be much better than most of the stocks in KSE 100. Its next year expected EPS is 7.5 - 8, and dividend is expected to be PKR 5.5 - 6 which means payout of around 75%. The current price of share is around PKR 44 and the target price is expected to be PKR 52, so the P/E of share is 5.9 (market has a P/E of around 8), dividend yield is around 12.5% and an upside of 20%. I think it is a good share to buy right now.

MARKET OUTLOOK FOR 2011: MARKET RANGE 10,600 -13,700

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.

POTENTIAL OF MARKET:

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).

RISKS OF MARKET:

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.

CONCLUSION:

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.

CORRECTION: POLITICAL INSTABILITY FINALLY ENFORCE IT

Analysts were expecting a technical correction but that was just not coming but finally it seems that political instability might enforce that awaited correction. Currently, at the time of this writing market is down to 11,814 from 12,022 closing on Friday, which counts to a correction of around 200 points. However, we might see some more correction in the coming days as uncertainty regarding politics might continue for few more days. Those who have booked their profits will now be in a position to buy back stocks. However, there should not be any “huge correction” because this is a pure “Cash Market”.

ATTOCK CEMENT: HEALTHY CAPITAL GAIN

Cement sector hasn’t performed well in the recent rally. The impact of floods has also dwindled it’s demand. Coal prices are also showing a higher trend as 2QFY 11 price averaged 97.4$ per ton which is 10% higher on QoQ basis. However, remember there is also a seasonal effect here as we know cement sector usually face low demand in winter. Despite this, the expectation of post flood construction activities and rising cement prices are two positives of this sector.

Our current focus in cement sector is on Attock Cement (ACPL). It is the most unleveraged company in company sector. Secondly, the company is installing waste heat recovery plant of 12MW which will help it to reduce energy cost which subsequently will improve gross margins. The plant is expected to come online by July 2011. Given the fact that company is unleveraged and there are many companies in cement sector not able to earn profits, there is a chance that company will go for expansion. Remember company was considering the acquisition of Al-Abbas Cement in FY2010 but the deal did not materialize.

The company is expected to post an EPS of PKR 13.5 with dividend of PKR 5 in FY 2011. Company is currently trading at around 62-63 range so the P/E is just 4.6. Therefore, as you can see the company is trading at a very low multiple. Since the market is trading in a 8-10 range, this unleveraged and strong company should not trade at this discount for too long. However it can be expected to trade at a discount because of its low dividend yield and cyclical nature but we believe that current discount is just too high. Brokerage houses are quoting a target prices of PKR of 80-90. The capital gain of 30-45% is expected.

ENGRO: STILL GOOD INVESTMENT

ENGRO has started a trial production of its 1.3mn urea plant from Dec 29, 2010. The plant is expected to start formal production from end February 2011. Since its debt level is very high and facing a gas curtailment issue, many analysts are having a hold stance on it and quoting target prices of 200-225. However, this is for short-medium term only and for long-term most of the analysts have a positive view on ENGRO. Its expected EPS for 2010 is around PKR 18 with a cash dividend of PKR 2 making an accumulated dividend to PKR 6 for year 2010.

Given the fact that foreigners are now leading the market, they usually have a long-term view, and they usually invest in blue chips like ENGRO, I believe ENGRO can give you much more return than expected in the market. It is currently trading at around PKR 192 with P/E of around 10.6. I would recommend a buy.

WERE FUNDAMENTAL INVESTORS WRONG?

Just few months ago when SBP decided to restrict money supply again, there was a lot of concern in the market and market at that time was trading at 10,000 level. Many thought that market will take correction but that just didn't happen, infact, market surged by 20% and today it breached 12,000 level after more than two years. I still remember technical analysts were still bullish at that time and it seems they proved to be right.

Actually, we need to see our region first, all regional countries like China, India, Sri Lanka, Bangladesh are trading at a multiple of 16-24 while we are still around 8-10 region. So the foreign investors who can borrow Euro/Dollar at just 1%-2% rate found our market attractive. Remember our Rupee is very stable and it is expected to remain atleast for one year so the foreginers can invest with confidence.

Finally, also note the key point, our multiple hasn't changed much despite market upsurge. Why? Mathematically, denominator of "P/E" which is earnings also kept increasing and this has kept market multiple downward and still at 8-10 range which is still at a very discounted value.

The conclusion is that "true fundamental investors" were not wrong and they expected this market upsurge and in fact there is still upside remaining as per them. I also consider myself as a fundamental investor and I will very soon come up with market range for the year 2011 very soon as my upper range for 2010 was "11,200" and market has already breached this level.