KSE - Profit Taking 31 March 2009

When we all thought the KSE Index 100 was on a smooth sailing as Mr. Shahbaz Sharif was reinstated as the Chief Minister of Punjab on 31 March 2009, the BIG players decided enough was enough and they booked profits on their open positions. Dirty old trick !! But what to do? It's their natural right!

Despite the profit booking, the KSE Index is poised to gain momentum during the current week as OGDC, NBP and POL stocks near the Spot. Whilst talking to small investors like myself, I realised that the hopes are set to take OGDC to Rs 90, I feel it is only fair for high dividend yielding stocks to be priced at around 10% yields. Accordingly, OGDC at 90 would mean around 11% Dividend return per anum. The interest rates are expected to be cut down to around 10% by the end of April 2009.

Small investors, however, need to be cautious in the coming days as the big sharks may have a ready plan to manipulate the market which may cause huge blows to the small timers.

Tip of the Day! Invest small and move with the market. At every defined level of growth keep investing in small chunks and most importantly please please use stop loss concept.

With the political climate now easing, we should soon see KSE 100 Index touching 7,500.

Karachi Stock Exchange

It is amazing how stock markets operate. Windfall gains followed by disasters. What goes up comes down!!!! yes, it is so true. Interestingly, at times the stock markets bounce back as well and that too in a short space of time. Karachi Stock Market (KSE) is a unique example. KSE, after the debacle of 2008 which continued till January 2009 has gained momentum and is showing signs of fast-tack recovery.

Some of KSE's big names have already posted almost 100% gains in only 2 months. The earning season has been pretty good too, profits falling in line or beating analyst's expectations. The index has been on a continuous rise despite the political turmoil in February and March 2009 and the unfortunate attacks in Lahore and Frontier Province.

The KSE 100 index which saw a bottom of 4,800 points only a couple of months back has finally surpassed the psychological levels of first 6,500 and today 7,000. Dividends, bonuses and rights have worked well to create the much needed euphoria for now.

How soon the index will see its late 2008 levels of 9,500 is something everyone is keen to find out !! April should be a good month as dividend/ bonus shares will be coming in for some key shares including OGDC, POL, National Bank of Pakistan and United Bank Limited. The investor's drive to collect cash and additional free shares will continue to help market gain milestones.

Investors have played a stupendous role in this recovery showing full faith in their favourite stocks. Stocks on the other hand have shown how attractive they have been with P/E ratio dropping down to less than 3 for some big stocks in February 2009. At present, PE is ranging between 4.5 to 6 for big names adn still attractive.

What is an ideal PE for a top Pakistani stock? Well, it all depends on the country's financial, political and economic situation. The foreign funding continues to come in and the interest rates have started to fall from very high levels of 15%. Hopefully, the increasing foreign reserves and dropping inflation and interest rates will further guide the index rise.