The phased-out increase in the Continuous Financing System (CFS) to Rs55 billion from Rs25 billion by the Security & Exchange Commission of Pakistan (SECP), a couple of weeks back has given the much-needed push to stock trading on the perception that there may not be a pressure on the liquidity or a speculative rise in badla rates.
The maiden increase of Rs5 billion to Rs30 billion would be effective by November 6; Rs37 billion by 13th; Rs45 billion by 20th and Rs55 billion by the end of the month.
The phased-out cap on the CFS that is Rs55 billion would be two per cent of the total market capital of $50 billion and 10 per cent of total free float, say some analysts.
In an identical development, number of scrips on the forward counter will be increased from the existing 30 to 40. As a result, the in-house badla financing will be banned from November 3.
Implementation of both these measures will enhance transparency in the market as from now on, the CFS will pass through the Karachi Automated Trading System, say leading stock analysts Faisal Shahji and Atiq Ahmed.
The phenomenon is reminiscent of the introduction of KATS as investors and leading brokerage houses at that time were a bit worried but later approved the system as it was in line with the international mode of trading, they say.
The new system will in future avert the badla-related crises as was witnessed in March 2005 and June 2006 when the market crashed, eroding $12 billion from the savings of small investors, they add.
But some leading analysts were sceptical of the proposed increase in forward stakes to 40 from the current 30 amid fears that the investment in in-house financing could be much higher than Rs40 billion as compared to the CFS at Rs35 billion at that time which may create a liquidity crunch - though for a short-time.
Many may not agree but about nine per cent increase in the KSE 100-share index followed by the price flare-up in bank and oil shares during Ramazan reflect that the anticipatory and speculative buying ahead of the introduction of new transparent system, perhaps is a silent welcome by investors and brokerage houses, stock analyst Faisal Abbas said.
Barring a similar credible performance during the month of Ramazan in 1999 and 2000 when the index had risen by 36 and 23 per cent respectively, there had been a steep decline ranging from 21 to 72 per cent in the year 2001 and 2005.
According to analysts, at that time the CFS Mark-2 could come to the rescue of the market and perhaps that was why its introduction was being widely greeted by the participants.
They say that the introduction of Mark-2 and an increase in the CFS should be at the same time which could ease any possible liquidity crunch once the new financing system is introduced.
Liquidity is one of the important factors and a chief driving force behind the sustained stock market run-up which keeps the market in shape.
There is a strong co-relation between the market trend and the liquidity, Muhammad Imran, a leading stock analyst say adding that the KSE 100-share index has witnessed an increase of 24 per cent or 1,713 points after the enhancement in badla limit to Rs25 billion from Rs12 billion from August 12 to October 14, 2005.
The Ramazan price flare-up appears to be widely greeted by all investors on the perception that there will be enough liquidity in the trading system which could sustain the run-up in post-Ramazan trading, they predict.
