Continuous inflow of funds from foreign investors, limited impact of the earthquake on Pakistan's economy, and strong corporate results were primary factors driving the current market rally. However, with Rs 25 billion badla investment cap, leveraging in the derivatives market was on the rise. Both open interest and the ready-futures spreads witnessed increase during the week.
Market players were extremely confident and were not willing to square up long positions. Several companies belonging to cement, banks, textile, gas and oil sectors were near their upper circuit or had reached the circuit during the week.
With PTCL gearing up for a big move, the index looked set to breach higher levels in the days to come. "We think a broader rally is on the cards and five-figure index levels seem not too far away. Brace yourself for a bigger bang!" a trader from Elixir Securities said.
Even a massive earthquake of 7.6 on Richter scale, which caused massive destruction in northern areas, Islamabad and NWFP, was unable to stop the market rally. The KSE-100 Index, after opening on a negative note on Monday, continued its bullish rally for the rest of the week. On weekly basis, the Index increased by 321 points (3.8 percent) and closed at 8864 level.
This was 9th week of positive closing where the index is currently trading at nearly 7-month high.
According to an analyst, the quake was unlikely to have a major effect on the equity market since majority of country's industrial and services activity was unaffected by this natural disaster. In fact, the massive reconstruction drive could boost the economic activity, particularly having a positive effect on construction-related industries.
Besides this, after a long time, foreign investment has also started pouring into the local market. Foreign investment is primarily being driven by strong macroeconomic fundamentals, corporate profitability and strong performance of emerging markets.
According to Jahangir Siddiqui Capital report, the current market rally is being driven by strong corporate sector profitability growth. Based on JS universe companies' sample, corporate sector profitability has witnessed an average annual growth of 23 percent, during the last three years, that is from FY02 to FY04.
An analyst from Atlas Investment Bank said that the Index showed an unprecedented increase this week. "We observed the aftershocks of the deadly earthquake in Northern Areas, which left thousands dead and millions affected."
International aid poured in as well as aid was given by the locals open-heartedly with every individual trying to help the affected in the northern areas. Contrary to expectations that such a calamity would depress the market, the Index remained on the upswing. The six top picks of the week were PTCL, OGDC, NBP, PPL, FFC and BoP.
"We particularly saw a stellar performance by the banking and cement sectors in the wake of the quake with expectations of increasing profits in the coming quarters for banks and increase in demand for cement on the back of the rehabilitation."
OMCs profitability also increased after POL price revisions and observed OMC's also performing well on the bourses. "We anticipate a correction in the coming week, and advise caution."
An analyst from KASB Equities said as that the State Bank has raised the limit of banks' exposure to the equity market up to 30 per cent and asked them to invest 10 per cent in futures market, this is expected to improve market sentiment. "This week should see some stock specific activity as the result season sets in again. We advise our investors to go long in fundamentally strong scrips. Our top picks are Fauji Bin Qasim, Kapco, ICI Pakistan, Nishat Chunian, Packages, Pak Suzuki and POL."