There’s quite a bit to feel good about with respect to the recent news regarding the Pakistani economy. Here is a quick summary:

1) When the floods hit, there was widespread reporting that the budget deficit would hit 7% and in fact, some commentators from across the border even speculated that it would reach 8%. In the Finance Minister’s budget speech, it was confirmed that the budget deficit actually reached only 5.1% for the year, a far cry from 7 or 8%. This is perhaps just one more indication that on the subject of Pakistan, whatever negativity you see in the press, you should generously discount. This economy was able to weather the WoT, the global financial crisis and the floods quite well in 2010.

2) The Federal Board of Revenue (FBR) has confirmed that tax revenue collections for the year have already exceeded last year’s collections and are trending up. Much has been said about the low level of tax collection in Pakistan and this news is certainly very welcome. This year a major initiative has been launched to further enhance tax collection. It is not unreasonable to expect that within 3-5 years the tax collection issue can be addressed to quite some degree.

3) Remittances continue to be a tremendously important, and fast growing, source of foreign exchange for Pakistan. These are funds being sent to Pakistan by the 7+ million overseas Pakistanis and represent the confidence of our expatriate community in the country’s future. For the 11 months of the financial year, these remittances have already crossed $10 Billion and since we’ve had multiple consecutive months each accounting for more than $1 BN in remittance receipts, it is not unreasonable to expect the year to close at or above $11BN. Not only is this almost 30% up from the previous year, it is also an all-time record.

4) While the NASDAQ and Dow have given up all their gains for the year, the KSE (Karachi Stock Exchange) is doing quite well. In fact, it closed yesterday (6/13/2011) at 12,353 which is within about 300 pts of its 52-wk high of 12,768.

There’s quite a bit of other positive news with respect to development projects and the increases in provincial development spending, but we’ll save those updates for another post. For now, the economy seems headed in a good direction.

Share this:

2010 is here, and so are TechLahore's predictions for the new year

I recently evaluated the predictions from last year. In a nutshell, I was about 80% correct. 2009 has certainly been filled with unique challenges, both at a global and national level. We’re all hopeful the future holds better things, and on that subject, I’ll share with you what I think will go down in 2010. Once again, while I’ve been lucky enough to be fairly accurate over the course of 2008 and 2009, it doesn’t mean the trend will continue in 2010. I won’t try and make safe predictions just so that they come true, but rather focus on things that I beleive all of us are thinking about… even though predicting their course might be fraught with risk.

So here goes:

Political predictions

I don’t see Asif Zardari making it through 2010. I think he will be deposed as President.

Though many political pundits talk about it, I don’t believe there will be mid-term elections this year. Whatever changes occur will be with individual and will not displace the entire post-2008 election scenario.

Gen. Kiyani is scheduled to retire close to the end of the year, but I believe he will receive a rare 1 year extension of service. However it happens, I don’t believe we will see him retiring this year.

The surge in Afghanistan will not work. If not by the end of 2010 then in 2011 the US will have to sit and talk to elements of the Taliban. The commitment of these forces will prove politically costly for President Obama.

Security and the situation in northwest Pakistan

As I had mentioned last year, the Army certainly had an operation up their sleeve. What happened in Swat and South Waziristan was the result of meticulous planning that had occured for months prior to the execution of either campaign. I believe these campaigns will begin to bear fruit in 2010 in the form of a reduction in security incidents in Pakistan. While there will be a definite tapering off in 2010, the nihilists will continue to make their presence felt now and then. Unfortunately this is a process which will take a little bit of time to completely unfold. But 2010 will inshaAllah be more secure than 2009 and quite measurably so.

The military will continue significant presence in Swat, Waziristan and will expand into other tribal agencies, expanding the writ of the government in an area that was always free of federal or provincial law enforcement since 1947. The action being conducted in these areas is certainly against the foreign nihilists who have taken refuge there and those who would seek to support them, but it also marks an expansion of writ into areas where it never existed previously (by design and by a 1947 era agreement which has clearly outlived its relevance).

Pakistan will continue to implement its strategic weapons programs and reap the fruits of investment in tactical weapons development. In addition to the first JF-17 squadron being weaponized and fully operationalized, we will see the arrival of F-16 Block 52 (Yes, there will be no last minute ‘hitches’), additional Saab Eireye AWACS aircraft, significant progress on the FC-20 fighter program, new air-to-air weapons such as the AMRAAM, and air to ground munitions and the Sniper targeting pod. In addition, the missile program will continue at full speed and more details will emerge regarding the 7,000km range Taimur ICBM. Pakistan will, however, not make any official announcements concerning this system. The much delayed Pakistan Navy next generation submarine deal will be finalized – there is a German vs. French situation going on at the moment but this will succesfully be navigated and a firm deal will take shape in 2010.

Technology Predictions

There will be a near-breakout level of success with a Pakistani based mobile software company. At least one company will claim 250K users for its mobile products by the end of 2010. It is very likely that two will.

Netsol will see its fortunes improve in 2010 from a share price perspective. Hovering now at around $1, they can expect to be at least 25% better off by the end of the year.

2010 is going to be a really bad year for Palm in terms of adoption of the Pre. I had predicted in 2008 that the Hail Mary piece of technology demo’d at CES fail for Palm. It has almost happened, but not quite completely yet. Palm will be relegated to a fourth tier player at best and 2010 will mark a signifciant reduction in its brand equity and influence.

The Apple Tablet will be released and it will be a major hit. Even though I don’t like Apple, I will buy it  It will be iPhone OS based and will not have the full functionality of a Mac. eReader apps for it will be absolutely killer and very succesful.

Windows Mobile 7 will come out in 2010 but will not be ‘all that’. It will take several updates and major enhancements to improve it. It will not reverse the market share trend away from Microsoft based phones that has taken hold over the last few years. Android will be the biggest gainer on the Smartphone side and will continue to whittle away at the Windows lead. Microsoft will undergo some pain in this area in 2010.

ARM based devices and cheaper laptops will start to chip away at Netbook growth. There will at most 20% growth in the Atom based Netbook segment. A market which went from 0 units in 2007 to clost to 40M units in 2009.

Nokia is not being succesful in its move from basic and feature phones to truly smart phones. Their UI development and OS skills are not in the top 3 at all. I think this will be Nokia’s downfall… as smartphones become less expensive in markets outside the US, fewer people will choose Nokia as it will no longer provide the best experience primarily due to software reasons. From the low end, Samsung and LG feature phones will continue to become better thus providing competition to the traditional Nokia feature phone niche. All in all, 2010 will see other mobile companies grow at the expense of Nokia.

I was wrong on this one last year, and this is almost too easy for 2010, but then again – you never know! The Software Park Tower in Lahore will be completed and will become fully operational in 2010. It is going to be too expensive sq ft cost wise for most companies so move-ins will be slower than expected.

Financial and Economic Predictions

The S&P will show a better than 7% gain in 2010. The Dow and NASDAQ will also come close to 10% gains.

The recession in the US will be over officially – it technically is already – but you’ll hear common people saying it. There will be a net reduction in the unemployment rate in 2010.

The KSE, having recovered more rapidly than expected in 2009, will show more modest gains of in the 10-15% neighbourhood in 2010.

The Pakistani Rs. will continue to trade between 82 and 86 to the USD through the year.

Share this:

Pakistan’s Netsol has been doing quite well recently. Year-to-date the stock, which is traded on the US NASDAQ bourse, is up almost 40%. This is now expected to head even higher as Aeur growth, an analyst firm, has just put a BUY recommendation on NTWK.

Netsol is considered a microcap with quite a lot of headroom for growth. The company’s stock touched $4 last year before falling to $3 and thereabouts. We do expect it will regain $4 levels before the end of 2008. This would represent roughly 40% return to an investor looking to purchase NTWK at its current price of $2.84.

Ameritrade’s news feeds carry this story:

In a radio interview with Chuck Jaffe, MarketWatch senior columnist, Auer noted that investors looking at stocks from the bottom up should not shy away from good small companies — at a time when the market seems to favor large-caps — even if that means going down to Pink Sheets companies to find them.

Auer’s fund is just a few months old, but his firm has used its current system on private funds for years, looking for stocks that have at least 25% year-over-year earnings growth and revenue growth of 20%, and then looking for a combined price/earnings ratio — representing trailing, forward and current P/E — of 12 or less to make sure he’s getting those stocks on the cheap.

[..]

“We’re focused on the numbers for the company,” Auer said, “not the market or the cap size or the sector.”

Further proving that willingness to go anywhere, Auer talked about several microcap stocks, putting buy recommendations on Art’s-Way Technologies and NetSol Technologies….

Here’s a look at NTWK’s year-to-date price curve and trade volumes:

Netsol's been doing pretty well this year

We’ve written about Netsol extensively here at TechLahore, here’s a sampling of some of our previous posts:

• Netsol lists on Dubai Stock Exchange
• Stock loses 55% in 3 months – Netsol in trouble?
• Netsol’s LeaseSoft application wins award
• Netsol’s revenues cross Rs. $1BN
• Najeeb Ghauri on Netsol’s China Strategy

Here’s more about Netsol from their official press releases:

About NetSol Technologies Inc.

NetSol Technologies (NASDAQ: NTWK) (DIFX: NTWK) is a worldwide provider of global business services and enterprise application solutions. NetSol uses its BestShoring(TM) practices and highly experienced resources in analysis, development, quality assurance, and implementation to deliver high-quality, cost-effective solutions. Organized into specialized practices, these product and services offerings include portfolio management systems for the financial services industry, consulting, custom development, systems integration, and technical services for the global Healthcare, Insurance, Real Estate, and Technology markets. NetSol’s commitment to quality is demonstrated by its achievement of the ISO 9001, ISO 279001, and SEI (Software Engineering Institute) CMMI (Capability Maturity Model) Level 5 assessments, a distinction shared by fewer than 100 companies worldwide. NetSol Technologies’ clients include Fortune 500 manufacturers, global automakers, financial institutions, technology providers, and governmental agencies. Headquartered in Calabasas, California, NetSol Technologies has operations and offices in London, San Francisco, Sydney, Beijing, Bangkok, and Lahore. To join the NetSol Technologies Inc. email distribution list please visit: http://www.b2i.us/irpass.asp?BzID=897&to=ea&s=0.

To learn more about NetSol Technologies Inc, visit www.netsoltech.com

Share this:

Starting what could become a trend amongst other Pakistani tech companies, Netsol has been approved for a dual listing on the Dubai Stock Exchange (DIFX) under the symbol, NTWK. This is the same symbol the company uses for trading on the Nasdaq (US). Saleem Ghauri, the CEO of Netsol, believes this move will allow the company to broaden its investor base; we certainly agree. A Netsol subsidiary is already traded on the Karachi Stock Exchange as well. Seems like Netsol is broadly diversified, especially for the relatively small capitalization it has currently.

The net-result of the Dubai listing remains to be seen, but it is well known that the management of the Dubai bourse has been very keen to get foreign stocks listed. They will probably exhaust all possibilities to ensure that the first few companies that make the move become ‘lighthouse’ symbols and do very well. And hey, what’s a few dozen million for the country that has the world’s largest sovereign fund? Yes, Abu Dhabi, the capital of the UAE now has a sovereign fund managing in excess of $1 Trillion (correct, One Trillion with a T) dollars.

Let’s see what the future holds for NTWK on the Dubai bourse! We predict it’s going to be good.

NetSol dual-listed for trading on DIFX
RECORDER REPORT

LAHORE (June 07 2008): The NetSol Technologies Inc has become dual-listed for trading on the Dubai International Financial Exchange (DIFX) after its name was approved for trading under the symbol NTWK.

NetSol Technologies Ltd President, Salim Ghauri said the approval reflected the globalisation of their business and served as an excellent complement to the existing trading liquidity of shares on Nasdaq.

Ghauri said that NetSol has already maintained an impressive presence in Saudi Arabia where it has a major blue chip customer. With the listing of NetSol with DIFX, the company will create new opportunities in the Middle East during the days to come, he added.

He said that NetSol is the first United States-listed company to go live with a dual listing on the DIFX. “It will help broaden our investor base within this dynamic region, as well as increase our brand visibility within the international markets,” Ghauri said adding the secondary listing of NetSol on the DIFX will bear similar reporting and disclosures requirements as in the United States. He said that NetSol plans to expand its business in the fast growing UAE market and the broader gulf region by introducing its enterprise solutions and services.

Share this:

Netsol has lost more than half its market cap since the last week of October this year. The stock has fallen from its high of $4.64 to just $2.00 today. Part of this is because of concerns about the US economy in particular and the global economy in general. The first three trading sessions of 2008 have delivered a huge loss to investors in the NASDAQ. Concerns are now running high as to whether the US is headed for a recession. The other part of the concern is around the political situation in Pakistan; the latter we completely discount. Frankly, there is next to no risk to Netsol’s operations in Lahore and regardless of the noise in the US media, there is no credible long term stability concern vis-a-vis Pakistan. What is MUCH more worrying is the impending economic crisis in the US. The mortgage fiasco, rising oil prices, the rapidly depreciating dollar and the continued expense of war is beginning to weigh on things in a very significant way. The latest job growth data, which is at a 4 year low, provides no comfort.

So what is going to happen to Netsol’s stock? Well, first, what’s going to happen to Netsol’s earnings? I think at this point there are real risks. Netsol’s core product – a lease management application – is very heavily dependent on the increase in lending, consumer finance and similar economic activity. Certainly, 2008 is not going to be a great year for this sort of product in the US. In Asia, perhaps it will be better. But Netsol has some exposure here. While Netsol has been trying to expand its customer base in Asia and diversify out of the US, there is going to be a negative impact in my opinon. Now, has the market already taken the extent of this impact into account in halving Netsol’s valuation? Probably. That said, Netsol may suffer an irrational response if it drops much below its current price. If it goes down another 10-20% I would say it would be a steal at the price. Even now, if you’re looking to accumulate slowly over time averaging out costs, it’s probably not a bad time to get in. If you time your buying over a quarter, you’ll hedge against the uncertainty of the next few months.

Look to start slow accumulation if you like Netsol’s business. While there might be a 10-20% downside still it won’t be because of anything wrong with the business. More so because irrational fear will drive it to those levels. Grit your teeth and get ready for what can be a difficult year for investors.

Share this: