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A MASSIVE weekend rally allowed the stock market to recoup most of its initial losses. However, a formidable section of investors was sceptical about the future outlook amid a loud whispering whether or not the worst was over.
But some big ones, who are said to be trapped in the phenomenon of short-selling after the ban on future contracts, could sustain the current run-up as they will continue to be active buyers to cover short positions, dealers said. However, the market will take some time to retreat to pre-reaction levels.
After suffering the biggest-ever single-session fall of 548 points or six per cent in the history of the Karachi Stock Exchange, the 100-share index last week staged a massive recovery on active short-covering aided by a downward revision of the exit mechanism but negative psychological factors were still present.
The index finally finished the week’s peak level of 9,607.11 points showing a fresh fall of 242.72 points. The last two sessions’ combine rise of over nine per cent allowed it to close with clipped losses from the total 1,100 points.
What seems to have lured the investors, both punters and institutional traders, was a downward revision of the exit mechanism from the existing 20 per cent to five per cent. This outwitted the bears and apparently restored sanity to stock trading.
The index should have recovered 820 points which could have been the biggest single-session gain if the upper lock would have been 10 per cent, said a leading stock analyst adding that the finish of the index at the day’s peak level indicates more pleasant surprises are in store for the massively mauled investors.
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The market is capable of recouping massive losses on the strength of positive corporate backgrounds news after the dust settles down, another predicted - but one may well ask why the dust was raised at all.
Most floor brokers say that the attractively lower levels attained by blue chips and those stocks which have the potential of higher capital gains are expected to reinforce the investor-perception about the future outlook but much would depend on institutional support, the CFS financing and speculative support.
In an identical crash in March 2005, the market tumbled to below 7,000 points but staged a progressive recovery from the lows to 12,336 points a year later, reflecting its inherent strength based on technical cycles.
The amendments in trading rules though was a bit late as they came after the market has declined by over 30 per cent and wiped out about Rs800 billion from the capital during the last couple of weeks, including the biggest single-session fall of 548 points on June 14.
There were modifications in trading rules, particularly downward revision of lower locks from 20 per cent to five per cent, ban on short-selling in June future contracts, increase in the exposure limits from 50 to 100 per cent and increase in the CFS facility from the existing 14 scrips to 30.
All blue chips which had dropped to their recent lows led the advance under the head of bank, oil and blue chips while notable among them were the National Bank, the MCB, the Pakistan Petroleum, the PTCL, the Pakistan Oilfields and others which finished well above their upper locks.
Most leading analysts believe the worst may now be over as strict adherence to amended trading rules could take away some negative initiatives being employed by speculative forces to spread scare among small investors followed by panic selling.
There are, however, two opinions about the future direction but technical position and the market’s highly oversold positions reflects that the current process of recovery will be sustained during the coming sessions also as bulls and financial institutions could hardly miss an attractive bait of capital gains at current levels.
Plus signs dominated the list under the lead of Wyeth Pakistan and Arif Habib Securities which recovered Rs29 and 22.30, followed by Sanofi-Aventis, National Refinery, Treet Corporation, Neslte Pakistan, Attock Petroleum, the PSO, Shell Pakistan, Al-Ghazi Tractors, Millat Tractors, Dawood Hercules, Pakistan Services, Pakistan Oilfields and the IGI Insurance up by Rs10.20 to 18.55. But the on-balance closing was on the lower side owing to earlier sharp losses in most important shares.
FORWARD COUNTER: Blue chips on the cleared list also came in for active short-covering at lower levels and virtually raced towards their pre-reaction point but the fall was so massive that they would take sometime to assume the role of trendsetters again.
The National Bank, the OGDC, Pakistan Oilfields, the PSO, Shell Pakistan, Pakistan Petroleum, the MCB, the PTCL, Hub-Power, the D.G. Khan, Lucky Cement and many others were in the forefront of a recovery movement.—Mohammad Aslam
