KARACHI: Stocks fell sharply on Tuesday with the KSE-100 index taking a deep plunge of 1,389 points (3.07 per cent) to close at 43,899.45.

Developments over the long weekend further muddled the political atmosphere, spooking investors who decided to take profit. Economic numbers also painted a dreary picture, adding fuel to the fire.

More than 37 stocks closed at their lower circuits or fell by more than 4pc. Figures released by the National Clearing Company of Pakistan showed that individuals and mutual funds were net sellers while companies, banks and insurance firms were net buyers.

Forever considered the panic-prone herd, individuals sold shares worth $3.13 million while mutual funds offloaded equities valuing $5.87m. Foreign investors bought shares worth $3.2m.

Manzoor Ahmed, COO at NIT, told Dawn that the asset management company, one of the three biggest players in the mutual funds industry, had not been troubled by any major redemption. He blamed political uncertainty and incessant selling by foreign investors for the market meltdown. Mr Ahmed said foreigners had sold equities worth Rs45 billion since the start of the year.

Index drops by 1,389 points; mutual funds emerge as largest sellers

“Losses were due to continued political noise ahead of Tahirul Qadri’s sit-in on Aug 16 and selling by local institutions,” observed dealers at Topline Securities. They added that weak external account numbers and rupee depreciation also remained a matter of concern for investors.

Some blamed the so-called capital-protected funds for the heavy selling pressure.

“These are asset allocation funds that go along with the momentum,” said Nasim Beg, vice chairman of MCB Arif Habib Investments. “They are buyers when the market is going up and sellers when it is going down. It’s almost like a programmed structure, moving in the direction of the momentum.”

As such, these funds can exacerbate volatility because of their automatic response to market movements, he said.

Mutual funds have been the largest sellers in the bear market recently. But Farid Khan of HBL Asset Management disagreed. “It is not accurate to say that capital-protected funds are the whole story,” he insisted, arguing that less than a quarter of the total selling by this industry is due to automatic selling.

“For the most part, selling is due to redemptions by our clients,” he said, adding that mutual funds, with Rs650bn worth of assets under management, have become the largest window through which investors enter the market. Buying and selling tend to be routed through their window regardless of what capital-protected funds are doing, he added.

The volume was up 68pc to 191m shares over Friday’s trading of 114m shares. The value rose 51pc to Rs9.1bn.

Volume leaders were second-tier stocks, such as Bank of Punjab, K-Electric and Azgard Nine, which contributed 35m shares to the all-share volume of 191m.

Five stocks that contributed the most to the index decline included Oil and Gas Development Company, which went down 3.9pc, followed by Engro Corp 4.3pc, Habib Bank 2.4pc, MCB Bank 4.3pc and Hub Power Company 3.6pc, wiping off 322 points from the index.

According to Intermarket Securities, Soneri Bank and National Foods went up 1.26pc and 0.17, respectively.

Sui Southern Gas Company went down 5pc on the back of news that the regulator cut the gas rate by Rs10 per unit. The exploration and production sector closed in the negative zone as oil prices slid for a second session, plunging to a three-week low on a stronger dollar and concerns about a global supply glut.

Pakistan Petroleum lost its value by 2.93pc while the drop in the share value of Pakistan Oilfields was 2.04pc. Pakistan State Oil lost 2.23pc and Sui Northern Gas Pipelines shed 5pc.

Oil marketing companies (OMCs) witnessed selling pressure, although the Economic Coordination Committee of the cabinet is expected to consider increasing profit margins of OMCs and dealers through prices of petroleum products, according to analyst Maaz Mulla at JS Global.

International Steels reported earnings per share of Rs7, up 158pc year-on-year. Its stock price declined 4.2pc. The result was accompanied by a final cash dividend Re1 per share. Moreover, Maple Leaf Cement, which went down 4.14pc, announced a 12.5pc right shares issue.

Market commentator Ahsan Mehanti of Arif Habib Corp stated that stocks closed bearish amid panic-selling on political noise and economic uncertainty. Foreign outflows, falling global crude prices, concerns about a $3.2bn trade deficit and piling circular debt led to a bearish close on the stock exchange, he said.

Published in Dawn, August 16th, 2017

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