By: Usman Zahid
BMA Capital Management Ltd.
Despite continued strong foreign portfolio investment (FIPI) of USD19.45mn over the past two days (post Eid), the KSE-100 index declined by 638 points or 2.1% following fears of extended civil unrest in the wake of separate protest calls by two opposition parties, the Pakistan Tehreek-e-Insaaf (PTI) and the Pakistan Awami Tehreek (PAT). The downward movement consequently eroded USD1.3bn or 1.76% of the total market capitalization in just the past two days. Mutual funds have been the biggest sellers offloading USD13.64mn worth of equities followed distantly by individuals with an outflow of USD3.57mn. Within the context of opposition protests, the call by the PTI has captured significant interest particularly given its position as the current second largest opposition party of Pakistan (trailing PPP) as well as the main opposition in the Pakistan’s largest province of Punjab. That said, the opposition is short on options in our view where we believe street protests may lead to some bargains from the government in terms of demanded electoral reforms. The demand for mid-term elections is unlikely to be met given the incumbent PML(N) is in a comfortable position commanding 190 (56%) of the total 341 seats. At the same time, the PTI currently has 34 seats in the NA where the threat of resignation resounds hollow in our view. A no-confidence motion against the Prime Minister is also likely to be shot down given PML(N)’s strong position as well as the PPP’s recent stance of continued support to the democratic setup within the country. From the market’s vantage, we believe negative sentiment will continue to prevail at the KSE till the outcome of Aug 14’14 protest with the direction likely to take its cue from the development. Fears of a whirlwind wall in profits for the Cement sector following acquisition of LPCL by BWCL (fanning fears of a price war) also contributed to the negative sentiment within the market. At current levels, we advise investors to remain cautious and keep an eye on political developments within the country.