KARACHI, Feb 24: Stocks at the Karachi share market got off to a storming start on Friday with the KSE-100 index closing 190 points higher at 12,706 points, spurred by massive individual and institutional buying.

Dealers said the market, which was now worth Rs3 trillion or $36 billion, had crossed the barrier of 12,700 points for the first time in nearly four years (45 months). Arif Habib, former chairman of KSE, attributed the bull run to several positive factors.

The assurance by the former finance minister regarding the reformed Capital Gains Tax (CGT), which included a ‘no questions to be asked on source of funds invested in stocks till 2014’ was a major reason that provided comfort to investors.

Smaller players, who had distanced themselves from the market after the 2008 debacle, had started to flock back in droves to reap returns from a greatly undervalued market. “The assurances over the Capital Gains Tax coincide with stellar corporate results, mainly by the fertiliser, big banks, cement and oil and gas exploration & production sectors, which has fuelled the market rally,” says Arif Habib.

Already since January this year, Pakistan equity values have risen sharply by 11 per cent. Analysts pointed out that investor sentiments in stocks, all across the region had taken a turn for the better and some of the foreign funds allocations were spilling over into the Pakistani capital markets. Net foreign investment inflow in KSE in the week ended Friday amounted to $1.5 million, bringing to a screeching halt the outflow which in the earlier week stood at $0.84 million.

Arif Habib thought that there was yet an upside potential in several stocks as the market was trading on price-to-earnings (p/e) multiple of 7 times the forward earnings, representing considerable discount to its regional peers. The stocks were offering a healthy yield of 7 per cent, he said.

Another well-known broker, Aqeel Karim Dhedhi (AKD), said the regulators had mounted punitive actions against a host of defaulter companies, which had set at rest investors’ concerns over protection of their interests. He believed that corporate earnings still had a lot of ground to cover as the results were around 40 per cent on the downside from the time the KSE index had hit the all-time high level of 15,676 on April 18, 2008. AKD also mentioned improvement in some important economy numbers and the imminent resolution of CGT issue.

Mohammad Sohail, CEO at brokerage Topline Securities, thought that the investor sentiment was buoyed by the belief that the Federal Board of Revenue (FBR) would soon accept the proposals relating to CGT, since they were endorsed by the Ministry of Finance. He said the declining leverage (purchasing shares on borrowed money) also assisted in the share market scaling new highs. “Based on better than expected earnings announcements, the market is re-rating stocks in banks and cement companies that are trading at forward p/e of 7 times,” he said.

Stock strategists noted that the average daily turnover at the KSE had vastly improved to 119 million shares in the first quarter of 2012, from 95 million shares traded daily in financial year 2011. The trading by investors falling in ‘individual’ category had scaled to 60 per cent of the total turnover, from 40 per cent in the depressing days of June 2011. With the entry of small investors, massive activity is being witnessed in what the analysts call ‘second and third tier’ (low-priced) stocks.