20000228

Stock market up 60pc

on hopes of privatisation,

IPPs issue resolution

HARIS ZAMIR

KARACHI: Nearly 60 percent improvement in the stock market since October 12, 1999 was due to expectation and high hopes for the resolution of disputes relating to independent power producers (IPPs), de-regulation of the oil and gas sector and privatisation of staterun companies.

The stock market since October 12, 1999 has risen by 763.66 points to touch the highest level of 2013.45 points on February 23, 2000 in over two and a half years. The market capitalisation soared to Rs 512.89 billion or $9.9 billion, from Rs 336.257 billion of October 12, 1999. The increase in the market capitalisation was around Rs 176.634 billion.

The rise in index was speculative in nature because about 60 percent contribution was made by PTCL, Hubco, Sui Southern Gas, Sui Northern Gas, PSO and Shell.

Analysts believe that the climb in the index was surely a bull-run but attributed it mainly due to anticipation of resolution of the disputes between the government and private power producers and steps taken for privatisation and deregulation of oil and gas and power sectors.

Out of total rise in market capitalisation of Rs 176.634 billion, the share of telecom sector was Rs 40.643 billion and of fuel and gas Rs 65.978 billion. Meanwhile, in terms of index, the pattern was identical. Out of total improvement of 763 points in index from October 12, 1999 to February 23, 2000, the contribution of PTCL was around 192 points, Hubco 48 points, PSO 70 points, Shell 25 points, Sui Northern Gas 33 points and Sui Southern Gas 44 points.

PTCL, Sui Northern Gas, Sui Southern Gas and PSO were up because the government intends to sell the stakes to foreign companies. PSO and Shell were up because the government would soon deregulate the oil sector and might allow them to increase their margins by 0.5 percent. Hub Power Co and other listed private power producers were up because the government has been willing to solve the dispute with these companies on commercial basis.

Analysts also believe that the rift with these companies had dried up the foreign investment in the country. However, according to Qasim Lakhani, of ABN AMRO Securities, the excess liquidity has been the dominating factor behind the sustained run-up. He said that with treasury rates falling as low as 6.5 percent, returns on deposits slipping off by as much as 150-200 basis points, and the foreign exchange market, bullion and real estate markets no longer holding investors' interest, the bourses were an easy choice for the hot money floating around.

Lakhani said that textiles had been star performers on the back of great cotton crop, firm yarn prices and easy liquidity. Fertilizers have seen interesting times with off-takes at record high, while cements have been shockers in the true sense.

He pointed out that going forward, the market drivers would see tangible progress on the divestiture front, Hubco resolution, positive development on foreign debt rescheduling and corporate performance.

According to an analyst of Taurus Securities, the index has rallied with the advent of every new government, peaked after a certain period and then plummeted till the advent of next government. He called this phenomenon the 'honeymoon period', similar to that which political governments enjoy with the electorate for a time assuming office. He added that the rally over the 'honeymoon period' is based on renewed market hopes and expectations. They, in turn, are driven by the effect of new faces in office, new rhetoric, the announcement of a new policy credo.

Despite the repeated past disappointments, the market is always willing to give the new team a chance to prove the difference. He remarked that the present government's credo is based on good governance, political devolution, electoral reforms, accountability and economic revival. The market hopes that a military-backed government, which is less vulnerable to political risks, will be in a better position to actually deliver some of the goods.