'This shows that the market is not purely liquidity-driven but very much profit-driven,' says Beshr Bakheet, managing partner at the local Bakheet Financial Advisers (BFA).

Income growth for 37 listed Saudi companies that released their 2003 results by early March stood at 61 per cent. Strong results were posted by Saudi Electricity Company (SEC), Saudi Basic Industries Corporation (Sabic)and Saudi Telecom, which together account for 53.6 per cent of total market capitalisation.

Profits at Saudi Telecom - the kingdom's largest listed company, with a market capitalisation of SR 140,000 million ($37,000 million) - jumped to SR 8,530 million ($2,275 million), a year-on-year increase of 140 per cent. Analysts have attributed the result to a range of cost-cutting measures and a fast-growing subscriber base.

Sabic's profits rose 136 per cent to SR 6,716 million ($1,791 million) in 2003, the highest in the company's history. 'Sabic turned in a good performance because it has increased capacities and both petrochemical and steel prices were strong,' says Muhammad Younas Malick, senior economist at Jeddah-based National Commercial Bank (NCB).

Good news has also come from SEC, which announced a 38 per cent rise in profits for 2003. 'Growth at SEC has been substantial,' says Malick. 'Since SEC consolidated its operations, it has cut fat, added more generation capacity and sold more electricity. Together these measures now translate into positive results.'

A positive performance has also come from the banking sector, where all listed banks except for Saudi American Bank (Samba), expanded their bottom lines in 2003.

'BFA expects that the dividends distribution of some large cap stocks will have a negative impact on TASI due to the expected technical fall of their stock prices. But the general direction overall will be positive for TASI,' according to a BFA report released on 26 February.

Other analysts take a similar stance. 'There will be some sell-off activity following dividend payments but first-quarter results in April will confirm the positive trend across all sectors,' says Malick. 'For the full year, we expect turnover to be in the range of SR 750,000 million [$200,000 million], which is more than GDP [gross domestic product].'

Economic reform initiatives led by the implementation of the Capital Markets Law, now expected before mid-year, and new listings are likely to be among the contributing factors for continuous strength on the TASI. The next major initial public offering (IPO) pencilled in for this year includes NCB, although no exact schedule has been released. National Company for Co-Operative Insurance (NCCI)is alsoconsidering an IPO.

www.meed.com/companies