KARACHI, June 28: The annualized COT (badla) rate at the Karachi Stock Exchange closed at 16.3 per cent on Friday, which represented an increase from 13.2 per cent, at the end of the previous trading week. But for the upper capped limit of 18 per cent on eligible and 24 per cent on non-eligible scrips, the badla rates could have been much higher. At the Lahore Stock Exchange, where there is no cap, badla rates stood at 25.4 per cent on Friday.

A COT report prepared by Muhammad Sohail, head of research at InvestCap, showed that the combined share financing (COT or badla investment) at the KSE and the LSE touched Rs16.2 billion on Friday.

“That is just half a billion rupees away from the life time high level of Rs16.7 billion reached in January 2003, which was followed by a panic-like correction of 500 points,” the analyst said, but added that it had to be noted that badla financing as a percentage of the market capitalization stood at 1.9 per cent at the KSE compared to 2.2pc that was prevalent on January 15, 2003.

But the analyst argued that in absolute terms, share financing from the banking system, this time around, was much higher compared to January 2003. “At a time when inter-bank money market is flushed with funds (overnight rate at 0.25-0.40 per cent), the mounting badla rates are definitely worrisome,” the analyst said. It couldn’t be that the June-end consideration could have pushed badla rates up, for lending on Friday meant that investment was after June 30 closing, due to T+3 settlement system.

Most analysts agree that the KSE is getting over-heated and a correction is due. Adding to the 112 per cent gain last year, the KSE has already galvanized another 26 per cent in the first six months of the current year. Abnormal liquidity aside, the rising COT investment and higher rates are cause for concern. “Besides badla indicators, technical ratios also point to the fact that equity market is highly overbought,” said InvestCap.

In their COT Report, Capital One Equities Limited (formerly IP Securities Limited) commented that positive interest in second tier stocks, relatively higher rates in the inter-bank market, upcoming auction of the PIBs and June closing were the factors that eventually led to a higher average COT rate for the week, that increased by nearly 20 per cent to around 15 per cent.

Syed Hussain Haider, analyst at Capital One Research, pointed out that the major activity had been seen in Hubco; DG Khan Cement and Nishat Mills, where average COT investment grew on average by 25 per cent. “As for the past several weeks, investors getting swayed by news regarding increase in cement production quotas and opportunities for the textile sector have started taking wide exposure in these stocks,” Mr Haider said, adding that the point was proved by mounting COT investment in Lucky Cement; Maple Leaf Cement; Pioneer Cement and Chakwal Cement.