KARACHI: At the last trading session of the year 2012 on Monday, the Karachi Stock Exchange Index of 100 shares crossed the incredible 17,000-point barrier for a brief moment, raising a chorus of cheers from brokers, traders and investors.
The stock index galloped by an incredible 5,558 points during the year, from 11,447 points at the start of 2012 to close at 16,905 points on Monday, providing investors stellar return of 49 per cent for the year, one of the highest among equity markets in the region. Most stock brokers contend that the double digit dividend growth and low valuations of Pakistani equities is the fuel that has fired the stock boom.
Mohammad Sohail, CEO of Topline Securities, says the major boost to Pakistani equities was provided by declining interest rates, resolution of capital gains tax related issues, improved foreign portfolio inflows, rising consumerism and healthy corporate earnings.
An analyst pointed out that the stock market saw foreign portfolio inflow of $125 million in 2012 recovering almost all the outflow of $127 million the previous year.
The year also saw return of happy times for the textile sector after countless gloomy years. Analysts said growth in foreign demand and weakening rupee triggered small investors’ interest in ‘low-priced’ textile shares.
Arif Habib, a former chairman of KSE, is of the opinion that in low interest rate scenario there is ease of valuation which, in turn, raises equity values. The demand for risk-free return investment avenues decreases and investors turn to stock exchange in search of higher returns. For corporates, the borrowing appetite increases with lower interest rates.
Mr Habib believes that the market still has a lot of upside potential given the growth of profits envisaged at 30 per cent in the year ahead in heavy-weight oil and gas and oil-marketing companies sectors.
Sayem Ali, economist at Standard Chartered Bank, said improved flow of funds might have fuelled stock boom. The liquidity has improved with an inflow of $1.8 billion from the US in 2012, the ease in monetary policy by the State Bank which lowered policy rates by 2.50 per cent and record government spending that has led to increased demand for goods and services.
Sayem pointed out that the blanket amnesty of ‘no questions to be asked about the source of funds invested in stocks till June 2014’ provided in the budget 2012-13 could have attracted a lot of undocumented wealth into the market.
However, Arif Habib argues that the amnesty did provide a psychological boost to investor sentiment. “However, we have not seen a large scale inflow of undocumented money into the stock market,” he says.
Although equities have multiplied wealth of high-net-worth individuals turning many into billionaires, most people rightly complain that that fruits of stock boom are not widely shared. “There is the need to bring bigger companies and bigger floats into the market and to expand the investor base,” said one market participant.
The KSE-100 index having crossed its all-time high since long continues to climb the steep slope. And in spite of the brokers’ optimism, there always is a concern of a possible pull back. An analyst, however, said on Monday: “Most investors are unwilling to give a thought to that, for all they want is to let good times roll into 2013.”