KARACHI, Nov 5: The Karachi Stock Exchange index of 100 shares plunged by 635 points or the maximum of 5 per cent on what many investors thought was ‘black Monday’ for the market. That was the biggest single-day decline in the history of the exchange beating the previously heaviest fall of 548 points recorded on June 14 last year.

Traders said that everyone expected the market to open on a bearish note following developments on the political front over the weekend. And the market moved between an acceptably narrow band of 230 to 300 points decline until midday when all hell broke loose. The rumours of change at the head of the government spread like wildfire and nervous investors started to throw away shares at ridiculously low prices. When the dust settled at the end of trading day, a cool sum of Rs186 billion ($3.2 billion) had been washed away from the market capitalisation.

In the absence of credible source of news because of a TV news channel blackout, the market was totally in the hands of speculators. “In a way, the stock market became the first casualty of the muzzle of the media,” says an analyst. By the time the denial from Islamabad reached the KSE, the damage had been done. The analyst said that the selling frenzy had been sparked by the belief that “if there is smoke, there must be fire”.

So, should the KSE Board or the frontline regulator -- the KSE management -- has moved in to calm the investors’ fears. “We cannot be expected to comment on rumours,” says Shaukat Tarin, the chairman of the Board of Directors of KSE, adding: “If we were to do that, we would be doing just that and nothing else”.

Adnan Afridi, the KSE managing director who took office only last month, affirmed that risk management measures were in place; that exposures had been collected in time and that there had been no defaults.

Unable to bear the heat, punters and day-traders did make a dash for the exit, but analysts thought that long-term, deep-pocket investors had decided to ‘wait and watch’. As is generally believed the government has the penchant to come to the rescue of the market in times of distress. Owner of nearly 50 per cent of the entire market, the government has the power to stem the tide by means of large-scale purchases through NIT, EOBI, State Life and other publicly held institutions.

Tariq Iqbal Khan, chairman and MD of the country’s largest mutual fund NIT, which holds Rs104 billion under management, brushed aside such suggestion: “I am answerable to my unit-holders and my fund makes decisions which suit them best,” he says. He stressed that the fund was sitting atop sufficient liquidity and that he had no need to sell in a falling market.

Evidence suggested that there had been outflow of foreign portfolio investment, though traders were not able to quantify the amount. Foreign investors hold 7 per cent of the market free-float, which would amount to $3.5 billion.

Muzzamil Aslam, group economist at KASB Securities, said he did not expect large-scale exodus of foreign funds from the market. He reasoned that the current ‘emergency’ slightly differed from the earlier three emergencies imposed in the 90s. In the earlier cases, he said, ‘corrupt governments’ had been dislodged, while in the current set-up, the judiciary had been sidelined.

“Since the government will be functional, there is no immediate scare of derailment of the ongoing economic policies, which lie at the heart of foreign investment decisions,” he says. Mr Muzzamil thought that the rule that applied to Monday’s trading was: “Buy on panic, sell on greed”.

But could there have been buyers, when nearly 50 active scrips hit their ‘lower circuit-breakers’-- a loss of 5 per cent of the value, following which trading in the scrip has to be suspended for the day.

“Given the turnover of shares which was a huge 247 million, considerably higher than Friday’s volume of 237 million shares, means that if there were sellers, there had to be buyers,” says another analyst.

No one was willing to hazard a guess on how the markets would behave on Tuesday, but Arif Habib, the veteran stockbroker-turned investment banker, observed that the freefall of equities presents savvy investors a valuable opportunity to buy at bargain prices. For the short term, most stockbrokers were selling optimism.“Given the strong fundamentals, both of the country’s economy and the stock market, things will hopefully start to look sunny by latter this week,” says a market participant.

And Shaukat Tarin held out a reassurance: “There is no reason to panic”.