KARACHI, Oct 6: Shaukat Tarin, the man tipped to be the advisor-in-waiting on finance to the prime minister, said on Monday that given the option, he would leave the stock market to itself.

“It must find its own level, without supporting it with artificial crutches,” Tarin told Dawn in reply to queries. He argued: “If the market has the intrinsic strength, it would pull itself back and move forward”.

But most major market participants said they would rather avoid taking the risk and in consequence the KSE-100 index ‘floor’ at 9,144 points remained firmly in place in the first post-Eid session on Monday.

The floor, which disallows the market to go under, was placed by the bourse on Aug 27, following a steep drop in stock values by 41 per cent in four months from mid-April.

The overwhelming fear that grips the market revolves round the foreign investors, who still hold $2 billion worth of stocks. Though, less than half the foreign portfolio investment of $4.8 billion early in the year, market participants dread that just as soon as the planks are pulled from under the floor, foreign investors would rush to the exit door like a panic-prone herd.

“The market could crash under their sell orders,” said one fearful stock broker. That prompted the KSE to push forward proposals such as asking the government to provide guarantee to foreign investors of a return of 10 per cent, were they to hold their stocks for one year at floor prices.

“If prices rise, foreigners were free to leave with profit or else, on completion of a year, government would buy back shares at floor values plus 10 per cent premium,” a stock broker explained, the ‘comfort’ proposal that the regulators placed before the meetings with Finance Minister Naveed Qamar and Shaukat Tarin.

Mr Tarin who stood down as the chairman of the KSE early in the year to take up the job of President Saudi Pak Commercial Bank also heads the Economic Advisory Council.

He said he had sought few days for deliberations before conveying to the KSE, the response from the government side. The board of directors of the bourse was understood to have scheduled a meeting on Friday to decide on a date of floor removal.

But in doing all that, what mattered most was that the KSE had managed to buy time in the face of intense pressure, mainly from foreign investors, who have been vociferously demanding floor removal and free movement.

Most market gurus were expecting the announcement of date of an end to the downside cap on Monday (Oct 6). That was not to be. And Razi-ur-Rehman, chairman of the Securities and Exchange Commission of Pakistan, who also participated in parleys with the government along with KSE representatives said: “We have not given any timeline to the KSE for removal of the floor”.

He said that the watchdog was looking at the situation and would assist in soft landing. Various proposals were flying around which participants believed could stabilise the market. One of them was the ban on day trading by Mutual Funds.

Members of the representative body, Mutual Fund Association of Pakistan (MUFAP), were due to meet in the afternoon on Monday to discuss the proposal.

But a fund manager said that in general he would back the proposal as some smaller funds were thought to be involved in potential market abuse, by selling their holdings in the early hours and buying them back at lower prices near the end of the session.

Investors took no notice of the Sunday’s meetings, as the KSE-100 index closed down by a fraction of one per cent and volume of shares traded stood at life-time lows on Monday. “The market can virtually be regarded as close”, a trader languishing in the hall, made an apt remark.

A fund manager, critical of the floor, alleged that the market had been brought to a standstill to protect a couple of big investors, who had made huge commitments with 15 to 20 stock brokers.

The word made to circulate was: “Removal of floor would make them default, ruining those 20 stock brokers and in consequence passing on the domino-effect to other brokers and the entire market”. But Mr Razi-ur-Rehman argued that such was not the case and whatever was being done was for the stability of the entire market and all investors.

So, if the government were to accede to the demand and agree to purchase stocks of government-owned entities, such as OGDC, would investors make a bee-line at the exit door? The critic thought not.

He said that the whole episode was the doing of losers, who wished to recoup their losses. They, he said, were banking on the government to pump in the liquidity, which would jack up stock prices.

He made the arguable remark that the stocks had hit the bottom, pointing to a meagre sum of Rs14 billion in Continuous Funding System (CFS), down from its peak of Rs54 billion in April. “Another 20 per cent fall would mean a loss of Rs2 to 3 billion, which is quite manageable,” he said.

But another distressed broker on the other side of the fence squeaked that it was simplifying an essentially complex problem.

Chairman KSE, Kamran Y. Mirza declined to talk about the bourse, throwing the ball in the court of Mr Adnan Afridi, the managing director of the KSE, who Mr Mirza said was the ‘spokesman’ for the board.

Mr Afridi said he could not comment on whether the government would throw in the help/life line and said it was “difficult to say how low the index can go, if the floor was removed”.

He stated that he had never said that the removal of floor could put the whole financial system in peril, but that there was indeed “systemic risk” involved.

Mr Razi-ur-Rehman, the apex regulator, conceded that ideally, the market should be left to find its own level, but he said that the market was passing through extra-ordinary circumstances and “extraordinary circumstances demand extraordinary means of solution”.