After receiving massive mid-week battering, stocks showed the signs of recovery from the early lows towards the close of the week. However, the uncertainty over the LFO issue kept the investors in two minds who played on both sides of the fence.

Nonetheless, the general perception prevails that the current run-up was not overdone as the investors were still eyeing some upcoming corporate announcements and the positive impact it would leave on stock trading. The on-balance closing was on the lower side after the sustained run-up.

Over the last three months, the KSE 100-share index had risen by 1,200 points or 33 per cent, stray pruning here and there could hardly affect its inherent strength. Moreover, two-way is the part of stock trading, which generally adds to its financial health in due course.

As a result, it finished well below its career-best level of above 4,600 points at 4,389.31, off 215 points or five per cent and so did the market total capitalization at Rs974 billion, up from the mid-week lows of 4,292.59 points and Rs955.101 billion, respectively. But the latter was on-balance down by Rs45.753 billion.

Although, the decline of 300 points which eroded Rs63 billion from the market capitalization was massive, followed by the panic selling by all and sundry. Some positive news, both on the financial and political fronts lured investors back into the market under the lead of institutional traders.

Apart from the reports of an imminent deal between the MMA and the government on the LFO, a 38 per cent basis increase in the T.bills yields, expectations of higher dividends, unloading of 2.5 per cent shares of the OGDC on October 20, and a steep decline in the carryover charges from 18.7 to 12.7 per cent were the immediate stimulants behind the snap run-up.

The other supporting factor was the Hub-Power which was massively battered during the mid-week but managed to steer out.

Negative fallout of the conversion of 58 million shares into the physical papers by the UK-based National Power International — one of its stakeholders — attracted strong support at the lower levels.

The National Power had already sold some shares during the last six months and investors fear another sell-off of 58 million could flood the market with the floating stock and a consequent panic selling in Hubco shares. The newly introduced KSE 100-share index, however, received massive battering earlier on Badla-linked panic selling and fell by 300 points, billed as the largest single-week decline ever recorded in its trading history since it came on the board in the late 70s.

In market parlance, it was a bad omen for the newcomer and could well mean further unloadings, both from the general investors and the financial institutions to meet the requirements to clear the heavy carryover volume.

The new 100-share index which made debut on September 15, according to the KSE sources, encompasses about 85 per cent of the total market capitalization and addition of some new companies in it.

It finally finished lower from its recent peak level as all the leading base shares, notably the PTCL and the Hub-Power, which hold 43 per cent weightage in it, fell sharply from the highs on persistent selling but no matching buying from any quarters was witnessed as was reflected by a modest volume. The single-session decline of 207 points on Tuesday was the largest-ever recorded so far.

The previous largest single-session fall was 171.26 points recorded on October 28, 1997 on selling triggered by the negative news from the political front. “Earlier it was a one-way street leading to south after the trading resumed”, says a leading stock analyst “higher Badla volume and rates may be one of the reasons behind the panic selling but not tell the whole story about the sell-off.

Owing to a persistent run-up and the market talk of 5,000 index level, a section of the leading operators may have run beyond their exposure limits and were obliged to get out of long positions after indulging in panic-selling, he adds.

“The market has run too far and too fast and the balloon of speculative run-up has to burst one day and that is there”, another says adding, “the correction is massive and snap creating panic among the investing public”.

What seems to have created panic in the corridors of the KSE was its intensity and investors who were still entertaining bullish ideas were not mentally prepared to digest it, he said.

“Bears may have led the bulls to the slaughter house but leading among them were not worried on the causalities and vowed to fight back”, says a leading broker, “some good corporate announcements were due and could evoke a lot of short-covering at the decline in the sessions to come”.

But strange were the ways of stock trading and truly reflected the high risks involved in it as no one was in a position to forestal the panic-selling.

All leading shares fell in unison, some below their circuit breakers, energy, telecom, banking fertiliser and cement sectors were the hardest hit on persistent selling at the inflated levels.

Apart from badla-related panic selling, the other negative factor was said to be two opinions about the outcome of talks on the LFO between the MMA and the government in the backdrop of conflicting statements by both.

Energy and auto shares led the early market decline, falling sharply and so did most of the overvalued leading shares on other counters. Leaders were the Pakistan Refinery, the PSO, the Shell Pakistan, the Pakistan Oilfields, the Unilever Pakistan and Javed Omer followed by the Lakson Tobacco, the Glaxo-SKF, the Al-Ghazi Tractors and some others.

Moreover, the late weekend short-covering allowed them to finish well above the early lows.

Some leading shares managed to finish with gains under the lead of the 6th ICP Mutual Fund, Yousuf Textiles, the 13th ICP and many others.

FORWARD COUNTER: Speculative issues on the cleared list also followed the lead of their ready counterparts and fell sharply under the lead of the PSO and the Hub-Power, off Rs6.55 and Rs4.25 at Rs290.35 and Rs39.20, respectively.

The PTCL followed them and was lower by Rs1.30 at Rs38.60 and so did some others including the Sui Northern Gas, the FFC-Jordan Fertiliser, the MCB, Nishat Mills and the Engro Chemicals.—Muhammad Aslam