KARACHI, Sept 3: The board of directors of the Karachi Stock Exchange would meet on Tuesday (Sept 9) to review the ‘floor’ mechanism, a sitting director said on Wednesday.

The ‘floor’ was put in place last Wednesday (Aug 27) by the bourse to prevent a further fall in stock index from that day’s scary low closing of 9144 points.

The step enabled the market managers to block the index, which on Wednesday last had almost gone over the cliff to touch the 8,999 points. But the mechanism had done little to improve the market.

In the five trading days since Wednesday last, the KSE-100 index had pulled back by just one per cent or 95 points, with the index closing this Wednesday (Sept 3) at 9239 points.

The index had only managed to crawl with difficulty each single day with as small as 0.05 per cent advancement in two of the five days and a ridiculously low level of volume of nine million shares traded on Tuesday, compared to earlier good day trading in 200 million shares.

“The objective of putting a freeze on the downside of each equity value was to give the market a breathing time and dispel some of investors’ fears,” said one major broker in the forefront of the 131 members who had given their approval through voice vote at a general body meeting.

The KSE board had endorsed the proposal, but the watchdog, the Securities and Exchange Commission of Pakistan (SECP) has since then kept itself comfortably aloof from the whole process, asking the bourse (off record) to use its own “discretionary powers” conferred by the Regulations.

Rumours were rife in the market that the board would unfreeze the stocks on Monday (Sept 8). But it looked unlikely, though there was nothing to prevent the board from using its “discretionary powers,” more so as no date had been specified for the removal of the ‘floor’.

“The market will be watching with bated breath the trading pattern in the first two days after the planks are pulled from under the floor,” says an analyst. He said that the worry that sat on most minds was the potential pattern of investment by the foreign investors, who had bluntly called the floor as “violation of free market principle.”

With possibly an investment of $2.5 billion still in the country’s equity market, an avalanche of sell orders had the potential to push the market down even faster than before. But a stock broker still selling optimism said that such a drift, even if it were to come, would be temporary.

“Local institutions, mutual funds and high net worth individuals will pick up stocks now priced at incredibly low valuations,” he said.

Another local fund manager concurred saying that one of the largest textile mills had made earning per share of Rs38 and was trading at Rs46, which produced price-to-earnings ratio of 1.2x. Overall, the market was nearing a single digit multiple, he said.Several market pundits said that everything depended on the return of investor confidence, which had been badly bruised by the bear rampage, which had witnessed the KSE-100 index plunge by 6,000 points in four months from its high of 15,700 points on April 20, eroding nearly half of the value of most stocks.

Small investors trading on leveraged buying had mostly departed after burning their fingers as was evident by the balance in Continuous Funding System (CFS) at only Rs19 billion on Wednesday (Sept 3), from its maximum permissible high of Rs55 billion on April 20. More than a trillion rupees had been wiped off the market capitalisation, in the four months, which now stood at Rs2.9 trillion.

In dollar terms, market cap had halved from $75 billion on April 20 to $38 billion on Wednesday. So what makes the market managers to bank on a change of investors sentiments for the better? “New hopes on the economic front and decent of oil prices,” said one stock broker. But above all, analysts thought the market could revive after the Sept 6 Presidential elections, as some of the dust on the political front would have settled.