Worried investors looked at the price fluctuation at the Karachi stock market on Monday and gasped for breath as equities went into a tailspin, with the KSE-100 Index ending trading on the day with a big loss of 374 points.

In two days, the index plunged by a staggering 757 points or 2.8pc. Heavy foreign selling in the two most heavily weighted stocks in the index — OGDC and MCB — was at the heart of the problem. OGDC was down 6pc and MCB 7pc, and together they contributed no less than 366 points or about half of the market loss.

This was major bleeding in the two stocks in a couple of years. The market went into a high pitch of anxiety as scared investors wondered if an $11.7 billion fund of Franklin Templeton Investments, with $827 million worth of OGDC and $139 million of MCB stock, had decided to stampede out of the Pakistan market.

The weight of the two stocks — OGDC’s at 11.5pc and MCB’s at 7.7pc — in the 100-index can drag the market to the bottom of the pit.

However, that was not to be. Investors heaved a sigh of relief when news filtered into the market that the sell-off came from a smaller Franklin Templeton fund, valued at about $12 million, which went into liquidation. This fund held 0.173 million shares of OGDC and 0.266 million shares of MCB.

By the turn of the week, the index had rallied back to its pre-crisis level, as foreign investors returned to value-buying in the market. But the episode set intelligent people at the market thinking. Is it fit and proper to let foreign investors tip the scales the way they want?

Curbing the influence of overseas investors would require further market depth and wider dispersal of stocks among a larger number of local investors.

According to analysts at Topline Securities, aggregate foreign holding of stocks in the Pakistani market stands at around $4.6 billion, of which OGDC and MCB account for about half — with $1.4 billion parked in OGDC and $1 billion in MCB shares.

In the last two calendar years, foreigners bought $2.9 billion and sold $2.4 billion worth of shares in the Pakistani equity market, resulting in net buying of $525 million. In the current year to-date, net foreign inflow has amounted to $26 million. This is in spite of the sale of $14 million in the previous six trading sessions.

“Some profit taking makes sense,” says Mohammed Sohail, CEO of Topline Securities. He believes the foreign sell-off could be due to the rupee’s appreciation. Though this scarcely looks like a worrisome factor, as local investors are now selling currency and investing in stocks and real estate.

Partial privatisation of OGDC had to be reckoned with as well, for it would dilute the stock’s price. However, the completion of that process may take some time.

Meanwhile, some stock brokers admitted that the ‘laundering’ of ‘undocumented wealth’ in the stock market by ‘rerouting’ it through the foreign investment mode, with the assistance of some offshore companies, was also a possibility.

Their suspicion is fuelled by the fact that foreign inflow intensified after January 2012, when the then-government conceded to brokers’ demand of “no questions to be asked about the source of funds invested in the stock market” for two years, till June 30, 2014.

That amnesty is to end in just three months from now. A drying up of foreign inflow from then on would be a conclusive proof that much of what looked like ‘foreign investment’ was actually local tainted money, which was being whitewashed through the stock market.