KARACHI, Sept 22: Ask any practicing Muslim at the stock market whether he would pray or play at the market during the holy month of Ramazan and the chances are that he would vow to try and seek divine blessings instead of trying to make money from ‘Satta’ at the market.
The drop in volumes during Ramazan, as charted out by analysts over the last seven years, indicates that the faithful do less business during the fasting month. The stock index nevertheless climbs during the holy month, which could be construed as in spite of the lower volumes or actually due to the trading volume remaining thin.
At least two stock brokerage firms, InvestCap and Noman Abid & Company have conducted their independent studies on the trend of the equities market over the last seven/eight years. The formula could differ but the result is about the same.
At the start of the business on the morning of Friday, Teerath M. Bhojwani, analyst at Noman Abid & Company forecast the KSE-100 index to end the day’s trading at 10,296 points. He fell short of that by 10 points, as the index closing was at 10,306. Just how did the analyst get so close to the mark?
The formula he uses is simple. He took the index closing on Aug 25, 2006, which was a month before the commencement of Ramazan (i.e. first of the month of Shabaan) that stood at 9,585 points and added 5-year average return during that month of Shaaban, which worked out at 7.42 per cent, i.e. 711 points and the result was 10,296 points. Whether weird or otherwise, it is the result perhaps that counts. Going by the same token, the analyst believes that on the last day of trading before Eid, the KSE-100 index should close at 10,510 points.
Now how that would be achieved? He adds five-year average return during the month of Ramazan to the index closing this Friday (last day before the start of the holy month). The average return from equities during Ramazan is calculated at 2.08 per cent or 214 points. Adding that figure to 10296, the analyst arrives at his mark of 10,510 points.
A forecast of 214 points addition to the index level during Ramazan, looks a good omen. But that has been proved by the past trend. In seven years from 1999 to 2005, the index has shown positive change in six years, except 2001, when it lost just one point or 0.05 per cent.
In rest of the six years, the index crawled up during the holy month. In 1999, it climbed by 167 points (12.50pc); in 2000 by 185 points (14pc); in 2002 by 87 points (3.86pc); in 2003 by 116 points (2.93pc); in 2004 by 45 points (0.82pc) and in 2005 by 237 points (2.82pc).
Ali Hussain, analyst at InvestCap, charts out his path of the index during the month before, during and the month after Ramazan. He mentions that the index usually maintains its (upward) direction during the holy month, albeit with lesser speed.
However, the magnitude of the trend is slower during Ramazan as is indicated by the charts prepared by the analyst. He observes: “Interestingly in the month following Ramazaan (i.e. Shawwal), the trend is maintained with more pronounced changes in equity prices”.
But for all that, the 8-year data prepared by the InvestCap analyst shows a drop in volume of shares traded by a median of as much as 33 per cent during Ramazan. The reduction in volumes during Ramazaan could be attributed to the shorter span of trading time as well as lower interest of speculators and big players in the market.
The analyst points out a demerit of lower volumes. He states that taking advantage, some enterprising (or may be less God fearing) may dictate the index’s direction in a relatively easier manner during Ramazan. “The buying or selling of a particular player can dominate the index due to the absence of someone taking the counter-position in the market”, the analyst says.
It would of course be hazardous to make a guess on whether the equities would follow the past trend. Past trends are never guarantees of future trends. And the reports are based on market but not scrip wise trading. They have therefore to be seen more from a technical perspective rather than fundamental.
Then there are innumerable question marks over the stock business: Lack of coordination between the apex (SECP) and the front line (KSE) regulators; frequent amendments in regulations; uncertainty regarding stamp duty levy by the Sindh government; rising cost of doing business; political uncertainties; the end of In-house badla from Oct 28 and last but not the least, the repercussion of the report of forensic investigators currently working on the trail of stock market crisis of March 2005.
The end of the month would also mark the deadline by which the investigators would have to present their report. Everyone would be waiting to see what the foreign detectives charging $1 million as fees would be able to deliver that the locals could not.
