Karachi stocks suffered fresh massive pruning for the second consecutive week as attempted technical rally — during the last seven days — failed to extend, despite higher corporate earnings and dividend. This was all because of the investors’ unclear perception on the future political situation.
Whether the market had touched its best level, or is in search of finding acceptable scapegoats to lean back to its original targets, is pretty difficult to predict at this stage. Nevertheless, the market is not in a good mood as the power behind its meteoric rise is on the way out to an honourable exit.
However, no one apparently minds if it seeks to follow its backward journey to a sustainable level after shedding a couple of hundred points more, as in the market parlance it is an essential part of the share business.
Some leading institutional traders and bulls tried to drive bears out of the market but the mid-week attempted rally remained inclusive in the absence of follow-up support at lower levels.
After having received massive battering earlier during the week, the stocks recovered from early lows later as a section of leading investors covered their positions at an attractively low level but the outlook remained uncertain owing to political polarization.
The KSE 100-share index shed another 226 points eroding Rs55 billion from the market capitalization at 4,163.23 and Rs919.348bn, respectively.
The PTCL dividend-driven mid-week rally allowed the market to wipe out in part, the earlier losses but the damage to the KSE 100-share index as well as the market capitalization was massive and needs the same amount of covering purchases to put them back on rails. Other dividend, notably from the Ferozson Lab, cash 45 per cent plus bonus shares of 25 per cent were on the higher side of the expectations.
The 35 per cent cash dividend by the PTCL was well above the analysts’ predictions and at one stage halted the market’s downward drift. But what is next is pretty difficult to predict.
The big ones, however, are a little worried about the reversal. In the last couple of months the market had risen by 33 per cent or 1,200 points and needs a correction and that came in the delayed sell-off.
The state of the economy, higher corporate announcements and a fair return on the investment in shares (above 10 per cent) will not allow the investors to sit on the sidelines for a long period, most analysts commenting on the current sell-off said.
There was a confusion in the market after trading resumed as the bears took a dominant role in the absence of matching support by the bulls at falling prices owing to the prevailing political uncertainty.
“The massive pruning appears to be a psychological reaction to the official constitutional package given to the MMA followed by its rejection”, said a leading broker, “but I don’t think bears could change the positive basic fundamentals”.
Being in a highly overbought position, the market could shed another 100 or so points, it appears pretty difficult to pull it down from the current highs at least for the near-term, he added.
The market’s terribly weak stance and nervousness was well-reflected in the KSE 100-share index, which suffered a fresh setback of 226.17 points or 6.5 per cent at 4,163.23 as compared to the weekend’s 4,389.31 points. At one stage, it was off 300 points but the late covering in pivotals allowed it to close partially recovered from the initial lows.
The market capitalization also suffered a massive fall of Rs40 billion at Rs935 billion as the traded volume shrank to a modest total of 300 million shares from an average daily volume of 450 million shares, reflecting the absence of leading investors from the market.
Although a loud whispering from the MMA sources suggests that it has officially rejected the constitutional package presented by the government to it after lengthy parleys. It’s reply seeking clarifications on some agreed points signals that it is very much in the game and talks could resume.
What seems to have worried investors, notably those who still hold long positions was the MMA threat to launch a mass movement against the government and the official reaction to it could well mean a big showdown.
“From onward, the sailing on political front may not be that smooth”, feared an analyst adding, “the absence of leading financial institutions and retailers reflects that most have already found the cue to the coming events and are planning to leave the arena”.
The MMA along with other major political parties may be working on different agendas but they are united on the LFO, he said adding, “no one could deny the fact that they together have a tremendous street power to unsettle the political atmosphere”.
An ambitious disinvestment programme for the next month including the oil-giant PSO’s controlling shares’ sell-off to one of the short-listed strategic buyers may be further delayed if the opposition opts for political agitation.
“A portion of massive investment in shares may have found their way into the government securities owing to higher yield rates, bulk of it is still intact but could outflow in case of political violence”, some others said.
Already, a good amount of cash is finding its way into the gold trade where the prices have soared to an all-time peak level of Rs7,210 per 10 grams, while a section of investors is looking for other gainful avenues of investment, sans the stocks.
How will the investor react to some of the good corporate announcements due in the next couple of days, including some leading ones is pretty difficult to predict at this stage.
But well above the market expectations dividend of 35 per cent and the EPS of Rs4.53 by the PTCL, for the year ended has altogether changed the investor-perception about the future price outlook.
Energy, auto and chemical shares led the market’s decline, falling like nine pins from their recent highs. Losers were led by the Packages, the BOC Pakistan, the Clover Pakistan, the Millat Tractors and the IGI Insurance. Energy shares and some other blue chips later recovered modestly.
The Parke-Davis was an exception, which rose sharply ahead of the dividend announcement.
But the largest decline were recorded in the Glaxo-SKF, the Pakistan Refinery, the PSO, the Pakistan Oilfields, the Shell Pakistan, the Unilever Pakistan and Javed Omer, the Wyeth Pakistan and the Grays of Cambridge.
FORWARD COUNTER: The leading speculative shares, notably the PSO, the Pakistan Oilfields, the PTCL and the Hub-Power came in for strong selling and finished with sharp fall in the absence of matching support from any quarters. Other also fell but modestly.—Muhammad Aslam