KARACHI, March 30: Prime Minister Shaukat Aziz had stated: “We must get to the bottom of this matter,” said Moin M. Fudda, managing director KSE, referring to the recent stock market crisis, about which the PM had held a closed door meeting the other evening. Participants included Dr Salman Shah, advisor to the PM on finance; Dr Tariq Hasan, chairman SECP; Board of Directors of the KSE; bankers and major stock brokers.

At a press conference on Wednesday, Mr Fudda said that the PM had pinpointed that it was undue acceleration, particularly in futures contracts and a steep down side that caused the crisis. He said that greed element had entered the future contracts. The PM asked the SECP to investigate the reasons for the crisis and said that action would be taken if some one was found guilty.

Mr Fudda observed that the PM at no point had asked any institution to enter and buy, but to look at the market on its own merit and decide for themselves; the PM also did not suggest that a consortium of banks be formed, the KSE MD clarified. But the PM emphasised on ‘investor education’ in which, he said, stock brokers should play an active role.

The KSE MD said that Mr Shaukat Aziz had reiterated that economic indicators were good; growth was over 7 per cent and inflation would remain in single digit. The PM, said Fudda, had observed that Pakistan was one of ten countries in Asia which would report high growth rate this year. Mr Shaukat Aziz reiterated that second generation reforms would be introduced, especially in the capital market.

Dilating on the affairs at the KSE, Mr Fudda stated that all eyes were on the clearing of March Future Contracts which were due on Wednesday and which went smoothly. “The KSE handled record delivery worth Rs27 billion and clearing and settlement of highest ever Rs13 billion, without a single default,” MD KSE said.

He said that one or two members were facing some problems in settlement but they were bailed out by stock broker, Aqeel Karim Dhedhi. He also named investment banker Jahangir Siddiqui and stock broker Arif Habib for their assistance in negotiating financial deals with banks and financial institutions.

The KSE MD explained that the ‘lower lock’ from the share in Oil & Gas Company Limited (OGDC) came off after a consortium led by the chairman NIT Tariq Iqbal Khan offered to lift OGDC holdings per holder, between 500 to 100,000 shares at a price of Rs117.50 per share. Around 11.6 billion shares came up for offer; the KSE brokered the deal and payment would be made to the sellers on Friday.

The KSE MD listed several reasons for the recent stock market crisis. Those included: Over stretched long positions by weak buyers in March Futures Contract; High speculation in March Contract in the hope that prices would rise further, resulting in increase in spread between Ready & Futures; sellers in March contract were carrying hedged positions from Ready Market; such sellers were not interested in squaring up in March contracts; withdrawal of funds from COT; profit taking and the reason that weak buyers in March Future Contract failed to find new buyers to square-up his positions.

He explained with the help of a chart how the index had climbed by 2122 points or 25.94 per cent from 8181 points on February 23 to 10303 points on March 15. Conversely in eight trading days from March 15 to March 28, the index dipped by 2595 points or 25.2 per cent from 10303 to 7708 points. The market price-to-earnings (p/e) ratio fluctuated between 12.15 to 16.77 times.

He also traced the price in T+3 and Futures market and the p/e ratio of the biggest culprit—-the stock in OGDC. On the T+3 counter, the price of OGDC share stood at Rs127.65 on March 3, which rose to Rs189.75 on March 15. In the Futures, the stock price rose from Rs132.45 to Rs193.60. The p/e ratio of OGDC shot up from already high 26.42 to 36.42 times.

The KSE MD observed that all risk management measures and exposure margins were in place and the stock exchange carried Rs10 billion in members’ protection fund. He said that in the marathon consultations between stock market members; banks and other participants, several proposals came up including the roll over of March contract into April. “But we had to maintain the sanctity of the market,” said Fudda. He said that banks were approached to provide margin financing and the Governor SBP, after discussing the matter with the SECP and the KSE management, lifted the badla cap from 18 to 24 per cent.

Replying to a question, the KSE MD stated that the management had forwarded several proposals for improvement in the Future contracts; that the Regulator was looking at them and would pass them on to the Board of Directors of the KSE. All that, he cautioned, would take time. Regarding the analysts’ reports of some of the brokerage houses, which sometimes publish misleading information, the KSE MD said that he would take up the matter with the SECP so as to set some sort of criteria for analysts.