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KSE growth foreseen at 20-28 pc in FY 2001

RECORDER REPORT

KARACHI: The Karachi Stock Exchange (KSE) has still 25 percent upside from current levels owing to privatisation and corporate earnings are likely to show a growth of 20-28 percent from earlier forecasts of 13 percent in 2000-2001, analysts said.

Nadeem Naqvi, head of research at International Asset Management said the index in January 2000 has risen by 24 percent. The market capitalisation has risen to $9.3 billion. The average daily volume has shot up to a record $275 million in January 2000, from an average of $91 million for whole 1999.

He added that earnings growth for KSE-100 companies indicates acceleration by financial year 2001 (FY01), FY00 forecasts range between 9-13 percent while for FY01 are between 20-28 percent. Although the first phase of re-rating has raised the Pakistan equity valuations from historic lows, Nadeem felt that there is still 25 percent upside from current levels. If there is progress on privatisation this could be higher.

The stock market has been re-rated on back of several factors, he added expectation of political stability under continued military-led governance in the foreseeable future, expectation of policy transparency and consistency, with hopes for a conducive investment environment.

Several fundamental factors also triggered a rally at the stock market Nadeem said. They were rising domestic liquidity, both within and outside the banking system. After the ending of deposit lottery schemes in December 1999, nationalised banks, which netted Rs 45 billion last year, retail savers are looking at equities again, especially as US$ deposits are no longer attractive with low returns and not much chance of large devaluation. Real estate also remains in doldrums as a result of tighter tax scrutiny and forced liquidations by bank loan defaulters to repay their overdue borrowings.

He said that the outlook of stock market in 2000 and 2001 appeared to be quite positive. PTCL could be a star performer in 2000. The results in first quarter showed a 41 percent increase in year on year pre-tax earnings with operating margins boosted to 51 percent compared to an average of 42 percent in FY99. This was achieved on the back of continued tariff rebalancing in the last budget and above-trend volume increases (over 20 percent) in international incoming calls minutes, which more than made up for the 15 percent reduction in international accounts rates.

This trend is expected to continue with capex accelerating in FY00. The company is moving towards revamping its internet operations, which have now been housed in a semi autonomous division. PTCL is also planning to launch its cellular operations in second half of 2000. The new chairman of the Privatisation Commission has asked the company's financial advisers to complete work on the information memorandum and begin soft-marketing via road shows by second quarter 2000. As each of these events occurs it would provide triggers for continual re-rating of the stock during 2000 on top of forecasts of a credit adequate growth ratio of 20 percent plus in net earnings between 2000-03.

Regarding oil market, he said, that the new government has made it a priority to deregulate the revamp the energy sector (oil and gas) in order to attract foreign investment and reduce dependence on imported energy sources.

The FY99 results show a healthy rebound for PSO as the utility inter-corporate debt was tackled by the government. Shell has continued to power ahead on the back of superior marketing strategy that allowed it to capture further market share from PSO and Caltex. Several proposals to deregulate the oil marketing sector are under consideration. Major re-rating triggers here can be upward revision in distributors margin, partial or full privatisation of PSO's distribution chain and restart of aggressive capex by Shell.