MARKET THIS WEEK

The KSE ended the week in better spirits than were witnessed during most of the week's lackluster performance - in terms of both index direction and volumes. The week witnessed a mixed-bag of news regarding the upcoming budget and geopolitical developments. Government plans to end electricity, gas and oil subsidies and enhance tax net to include services and real estate sectors kept investors nervous. At the same time, SBP's quarterly report stated risks to both the economy and banking sector (although amply capitalized to absorb any shocks) which also put pressure on the sector. On the flip side, however, the market cheered NEC (National Economic Commission) clearance of PRs621bn PSDP for FY10 and the positive intent showed by stakeholders' in introducing leverage financing products in the market. Dow Jones' announcement to include Pakistan in DJ-FEAS (Federation of European and Asian Stock Exchanges) Composite Index -with 9.3% share - is also a positive development though the real benefits in term of FII flows may take time to materialize. In sector specific news, while strong oil prices continued to buoy sentiment in the oil sector, banking spread during April 2009 shrunk by 12bp MoM to 7.54%. On the telecom front, the government is planning to cut SIM activation tax from PRs500 to PRs300 that should save ~PRs2.7bn to cellular companies who currently subsidize the amount.