Karachi Stock Exchange-100 index continues to Decline
Pakistan Times Staff Report

KARACHI: The stake holders, the brokerage houses and the investors, sitting on their toes with their fingers crossed, continued to watch the trading board helplessly which remained unmoved on the 8th consecutive day when the market resumes business after a two-day break on Monday.

The slide of the market persisted mercilessly giving another shock to the KSE-100 index which shed yet another 255 points to the 7709 point level. Since the 10510 points intra-day high on March 16, 2005, the KSE-100 index is down by 2800 points or 27% so far.

However, a frantic activity was seen on the part of the stock exchange and the regulators over the weekend in order to provide badla financing to the beleaguered investors and brokers.

Consortium of Banks

Reports say that a consortium of banks arranged sizeable financing lines to rescue the trapped investors in the hour of the need otherwise many investors or brokerage houses could have gone defaulters. Still there are many stake holders waiting for their fate before the expiry of the date of taking the deliveries of the stocks which betrayed their hopes for making profits.

Such a situation resulted from the fact that a large number of long positions in the March futures Contracts could not be squared and thus marked as deliveries, thereby requiring greater financial commitments.

Marathon badla sessions were held even on Saturday and Sunday, closed holidays otherwise, in order to provide rollover facility for these positions.

The carryover value as on March 25, 2005 jumped by approx. 54% to Rs33.4billion as against Rs21.7billion a day earlier.

Surprisingly, carryover values in OGDCL increased by only 18% to 42.4million shares, even though there was the general impression in the market that there were significant numbers of outstanding positions in OGDCL’s shares in the March futures.

Market Behavior

Contrary to the market behavior last week, today’s session depicted a highly volatile behaviour and at one time the index made a high at 8002 points. However, as usual OGDCL plunged to its lower circuit level.

Other heavyweights quickly followed suit with PTCL, PSO, POL and PPL closing at their lower caps.

Nonetheless, some positive activity was witnessed in secondary stocks as TRG, KESC, Telecard, PIA, Chakwal Cement and Fauji Cement posted respective gains of 14.3%, 10.5%, 2.3%, 5.5%, 4.4% and 1.1%.

Major drama was witnessed in FFC as at one time the scrip soared to its upper cap but then towards the end of the session, it came under selling pressure.

However, the scrip still managed to show a net gain of 0.9% to Rs128.35. PICIC too depicted an increment of 5.0% to the Rs85.00 level.

The market’s crash, though still continuing, has placed a number of scrips at attractive levels. The fertilizer and banking scrips however managed to attract attention of the investors even in the worst prevailing conditions.

Of the Crash

Since the 10510 points intra-day peak level on March 16, 2005, the KSE-100 index plummeted 27% or 2800 points in just eight trading days to the 7709 point level on Friday.

According to market analysis, numerous factors have been cited for the unprecedented stock market crash, which include the generally overbought market situation around the 10000 point index level, heavy long positions in the March Futures Contracts, brokers apprehensions towards the new risk management regulations put forth by the SECP and some deterioration in the law and order situation in Baluchistan.

However, the market experts feel that it is indeed the huge positions in the futures contracts that are responsible for the freefall of the market.

Since the unsquared long futures positions are marked as deliveries, the market crash turned into a liquidity shortfall situation. In an effort to avert a liquidity crisis, the stock exchange management had announced one-week extension of the March Futures Contract, though this decision was withdrawn later on.

Due to tight liquidity situation, the Karachi Stock Exchange (KSE) and the regulators over the weekend initiated several measures to facilitate carryover or badla transactions. This measure was also aimed to facilitate rollover of unsquared futures contracts.

Firstly, the rate limit on badla financing was raised from 18% to 24%.

According to informed source, the SBP on Saturday reportedly removed the restriction on banks’ investment for badla financing and a consortium of banks was arranged a financing line to the tune of Rs19billion for the stock brokers and investors.

Marathon badla sessions were held on Saturday and Sunday to facilitate the rollover of transactions. According to the information available on the KSE website, total carryover value as on March 25, 2005 stood at Rs33.4bn.●