KARACHI, May 30: In 30 trading sessions, the Pakistan equity markets have seen its main KSE-100 index tumble by as many as 2,160 points from 12,278 on April 17 to 10,118 points on Tuesday. During that period, the market capitalisation has eroded by an equal 17 per cent from Rs 3,460 billion to Rs 2,859 billion. A sum of Rs 600 billion has been wiped off the market which on an average means loss of Rs 20 billion a day. Investors gasped with horror on Tuesday as the Index breached the 10,000 points psychological barrier for a brief moment and drop to 9824, before making the day’s closing at 10,119 points. At the end of the day, investors’ were at a high pitch of anxiety.
Most of the market pundits thought that one of the major reasons for stocks erosion, which intensified in the last two months, had to do with the pull back of portfolio investment by foreign investors. One estimate suggested that outflow of foreign investment during April and May was over US$100 million, which was a quarter of the net selling by overseas investors during this year.
But analysts pointed out that the trend was witnessed all across the emerging markets, as global investors worried over higher interest rates and continued to bail out of riskier assets in favour of government bonds.
Major market players subscribed to the view that foreign selling triggered the sharp fall in equities as weak holders began to offload. That started a vicious circle where, fearing the March 2005 like crisis, brokers made margin calls from investors, which in turn pushed prices further down. “A great deal of investors fears stem from the uncertainty over the budget,” said a mutual fund manager. He explained that there were more than usual “rumour mongering” regarding the possible contents in the budget briefcase, compared to previous years.
Each day brought new whisperings in the market, which included possibilities of levy of tax on sale of shares; Central Excise Duty (CED) on bank advances; CVT on real estate; excise duty on financial services and the latest on the list being imposition of tax on all perks and benefits of the salaries class.
A major reason for the fall in share values in Pakistani bourses has forever been the ‘herd mentality’, where speculators and day traders buy and sell on hearsay and not on the basis of fundamentals. “Fundamentally, the stocks are strong as before” says an analyst.
He contends that the upcoming financial results and prospects of major companies do not justify the steep drop in their share values: In the recent period, National Bank of Pakistan has slumped to Rs 215 from Rs 280; Muslim Commercial Bank to Rs 209 from Rs 260; Pakistan Petroleum to Rs 233 from Rs 325 and Pakistan Telecom’s share has dipped to Rs 45 from Rs 65.
The market gurus believe that the decline was likely to continue until the pre-budget buying. The mystery that no one is able to unravel is: why are the dozens of mutual funds sitting on the sidelines and do not stoop to pick up equities at such attractive valuations?
