Bulls tighten their grip after clarity on monetary policy (31072008)

LEADER REPORT
KARACHI: The ongoing uncertainty related to the monetary tightening was over with the announcement of 100 bps increase in discount rate. The hike was moderate and expected, due to the pre-event discounting mechanism and attractive PE levels. Market opened in a bullish mode and the index rallied upwards. The major fundamentally strong blue chips scrips, in which some are trading below their book value achieved their upper circuit breaker.
The market opened with an almost 300 points appreciation and maintained the level, however later on as buying interest amplified at the end ,investors did not prefer to book their profits. However volumes remained on the lower side compared to the gain totaled to mere 117 million shares, which is not a healthy sign for the market as its shows retail investors are still reluctant to enter the market basically due to the shattered confidence. The session concluded with appreciation 405 points at 10,853 points.
Stability was witnessed in the Rupee, as the increase in discount rate will further mop up liquidity from the money markets and provide more stability to the Rupee. The SBP warning seems to be effective as KIBOR plunged down to 13.5 percent from above 14 percent. The SBP had warned banks to bring the Karachi inter-bank offer rate up to 13 to 13.5 percent. The banking sector did not seem to be taking any negative impact of the monetary policy as they were already extremely depreciated and presented at a very attractive valuation.
One of the major threats the foreign investment outflow continues, as the foreign investors portfolio investment of the last session showed an outflow of USD0.4 million. However this is a significant decline looking at the previous outflow in the last sessions.
The short term outlook of the market seems to be flourishing, as major scrips currently trading at discount and P/E of primary sectors straying at attractive levels. The upward movement of the market will be assisted by the corporate result announcements of major blue chip scrips, which are expected to be positive and post decent growths. Investors are advised to opt for scrips in first tier banks, E&P and Telecom sector.