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| December 04, 2006 | Monday | Ziqa'ad 12, 1427 |
Stock market undergoes massive pruning
THE Karachi Stock Exchange last week received a massive battering as negative news followed in quick succession but what proved the last straw were the below-market expectations of the GDS price of the OGDC.
The analysts were eyeing the price level of $2.50 to $2.75 per share on the basis of its ruling price. However, it fell well below the calculations of fair value, and the sell-off that followed dragged the entire market further down.
There was a loud whispering in the market that its share value could fall further from the Friday's lower lock at Rs120.85 but the analysts said that there could be a lot of covering purchases at lower levels.
The fixation of the OGDC's GDS value on the lower side at Rs115 per share or $18.90 GDS for 10 shares pulled the stock market further down at the weekend session. This added to the early sluggishness as investors liquidated their long positions on oil, bank, and some other blue-chip counters in panic. However, the activity was terribly dull in falling volumes.
After moving either-way, the KSE 100-share index finally managed to finish with the sharp fall of 482.71 points or five per cent at 10,388.19 points as compared to last week's 10,870.90 points. The KSE 30-share index also fell to 13,131.32 points as compared to previous 13,589.02 points.
In early trading, speculation about its share value kept investors on toes throughout last week amid conflicting reports linked to lower and higher prices. And for being one of the leading base shares, it had its part in the prevailing uncertainty.
In future trading, share value of the OGDC - both local and the GDS - may not have any relevance to the local trading as everything was prior to the fixation of price, some analysts predict.
Whether or not brokers could digest the negative fallout of the increase in their exposure margins to 50 per cent from the existing 30 per cent was unclear. It will be known by next week, they added.
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The next week could be quite crucial for future direction of the market as it could react either way. The political uncertainty resulting out of the resignation by the MMA’s Parliament members could leave a negative impact — though for a short-term — on stock trading, feared an analyst Ashraf Zakria. After resuming the trading on a fairly steady note, the Pakistani stocks suffered a mid-week reversal apparently on snap technical selling in most of the leading base shares caused apparently by an increase in the broker’s margin.
Essentially, it was the weakness of the OGDC whose road shows were being held prior to its GDS flotation on the London Stock Exchange. Perhaps all was because of the conflicting reports about fixation of the GD share price, analysts said.
But some others said it was a broad technical correction which had engulfed the entire blue-chip counter and predicted that the rebound was possible at lower levels, any day.
Analysts apparently based their perception on the objective background news on the corporate front — notably higher earnings by cement, bank and oil sectors.
The MMA’s resignation threat was still far away and investors had ignored it for the time being by following the market’s fundamentals, a leading analyst Hasnain Asghar Ali said adding that the uncertainty over the OGDC share price will be over shortly, and for being one of the market leaders, it will take the market along in the plus territory.
Meanwhile, leading brokerage houses were said to be busy in preparing replies to the SECP’s notice on future sales beyond their limits. But that was not being considered a market depressant, as of now.
However, there were some fears among brokers about the new risk management measures which will be enforced progressively from next month, brokers said.
FORWARD COUNTER: Speculative shares also came in for active selling and suffered fresh fall under the lead of Pakistan Petroleum, Pakistan Oilfields, National Bank, the OGDC and several others. But the cement shares managed to finish partially recovered on active short-covering followed by reports of the sales tax exemption and the restoration of rebate on exports.—Muhammad Aslam
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