KARACHI: Panic gripped the stock market on Wednesday as heavy sell-off by both local and foreign investors saw the Karachi Stock Exchange (KSE) benchmark 100-share index sink deep down by 817.28 points (2.53 per cent) to close at 31,524.98, wiping Rs172 billion off the market capitalisation.

As brokers tried to calm down the market, the index recovered a little from the intraday crash of over 1,000, which represented the biggest single-day decline since the start of the current year.

The bloodbath on Wednesday together with the persistent gloom has seen the index fall by 3,300 points (10.5pc) from its record high of 34,826 points on Feb 3.

Many market players said small investors behaved like a panic-prone herd as they stared at the red splashed all across the trading board.

The fuel that fired selling was provided by foreign portfolio outflow that has amounted to a staggering $108 million this year.

Foreigners were net sellers of $7.8m worth stocks on Wednesday. “It’s a major bleeding,” conceded a stock strategist. Several market participants believed that the pullback was mainly by US-based Everest Fund which has stock holding of $100m in Pakistan market.

But the head of equity sales of a major brokerage house, which was thought to cater to nearly a third of foreign portfolio investment in Pakistan markets, argued that three to four foreign funds were seeking an exit.

The local investors’ fear of a further flight of foreign investment was exacerbated by the statement of IMF chief Christine Lagarde who warned in Mumbai on Tuesday that emerging markets need to be prepared for the impact of a rise in US interest rates which could still surprise in both timing and pace.

Zubair Ghulamhussain, the head of equity sales at Foundation Securities, said that selling in emerging and frontier markets in anticipation of US interest rates hike and talks of sell-off by specific funds added to the confusion in the market.

There were also talks of ‘margin calls’. Although glum faces could be seen all around the corridors and the trading hall of the stock exchange, many brokers were selling optimism.

“Things are not as bad as they are made to appear,” asserted a stock broker. He thought that as the panic would subside, investors would be able to concentrate on fundamentals, which, according to him, were strong.

Arif Habib, a former chairman of the KSE, said the index had been weighed down by seven to eight stocks on the heavyweight oil and gas, and banking sectors. He believed that about half of the 10.5pc dip in the index since February could be traced to the two sectors.

“In the oil and gas sector, stock prices had succumbed to low international crude prices which investors fear would hit the corporate earnings, while in banks, the shrinkage of spreads would hurt profitability in the medium term,” he said, adding that experts thought banks could stave off impact on the bottom line in the short term through earnings on available PIBs

Zulqarnain Khan, executive director at Next Capital, also believed that the market could stabilise at the current levels as the fundamentals had turned attractive.

Published in Dawn, March 19th, 2015

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