Time for bargain hunting in KSE

Global economic meltdown worries hit equities at Pakistan's Karachi Stock Exchange (KSE) last week where its main index shed seven percent following a huge decline in the regional stock markets.

For the week that ended on August 05, the KSE 100-Index fell by 815.28 points where four black candles have occurred during the week and steady downward pattern dragged the index into red territory as it started the week at 12,190.37 before closing at 11,375.09.

Global Markets have lesser exposure in local bourse

The global stock markets nosedived for the eighth session on the trot over the concerns of slowing global economy and EU debt contagion that has now spread into Spain and Italy. More than USD 4.40 Trillion wiped out from the major stock markets of the world. Despite huge losses in the global stock markets where Standard & Poor's 500 Index recorded its worst decline since February 2009 on Thursday, August 04, 2011 by depicting 4.78% or 60.27 points to close at 1,200.07 levels while Dow Jones and NASDAQ by 4.31% and 5.08% respectively, the KSE looks at a better position.

The global markets are likely to sojourn in volatile conditions in coming weeks. However, Pakistani bourse looks the otherwise. Pakistani stock markets don't largely depend on the global equity markets as they have less exposure here.

Pakistani equities at far cheaper price

Pakistani equities are already at a lower level and are available at far cheaper prices than the rest of the world and hence offering a great Dividend yield. Pakistani bourse is currently trading on 55 percent discount to the Asian Markets thus with the double digit growth makes KSE attractive at a price- to-earnings ratio of 6.45x where rest of the Asian markets are offering 8x to 17x.

Above than average growth in corporate earnings is expected

The corporate result being announced these days of major companies in KSE depict solid positive performance at different levels. The Banking sector showed resilience in the 2008 crises and it seems the banks are on the up again from this year.

Cheapest prices: Why not to build portfolio..?

In line with the above than the average growth in the corporate earnings coupled with the falling interest rates, we recommend investors to buy selected stocks on dips as this panic selling spree provides a huge opportunity for portfolio building. The upcoming financial result of Pakistan Petroleum Limited (PPL), Oil and Gas Development Company Limited (OGDC), Pakistan Telecommunication Company Limited (PTCL), Pakistan State Oil (PSO) are also expected to be good. As per the report recently being published by the AKD Securities Limited, the PPL is expected to depict 41%YoY growth during FY11.

The company is offering a 6% dividend yield with a strong growth potential. A double digit growth is also likely to be marked by the OGDC. The Reuters Consensus Estimates are suggesting the Earning per share of (EPS) of PKR 14.62, a 12% higher if we compare it with the earlier year. The company is offering a 4% dividend yield. An 11%YoY growth with an expected EPS of PKR 2.20 is likely to be marked by the PTC, its consensus estimates suggests. The company is offering a remarkable dividend yield of 16%. PSO is also offering an attractive dividend yield 7% where 56%YoY increase in its earnings during FY11, the estimates suggests.

Companies like Pakistan Oilfields (Limited (POL), Fauji Fertilizer Company Limited (FFC), Fauji Fertilizer Bin Qasim Limited (FFBL), Hub Power Company Limited (Hubco), Lotte Pakistan PTA (LOTPA), Nishat Mills Limited (NML), Attock Petroleum Limited (APL), Attock Refinery Limited (ATRL), Lafarge Pakistan Cement Limited (LPCL), and Lucky Cement (LUCK) are also showing fast pace growth coupled with strong dividend yield.