Stocks managed to arrest the last couple of weeks’ persistent downward drift in the last week as the institutional traders covered their positions at an attractively low level aided by some positive news from the central bank — notably the amended prudential regulations.
The stocks swung both ways, but never lost the hopes for a positive outlook, owing to the confusion over the timeframe in the amended central bank prudential rules allowing the banks and the financial institutions sufficient time to comply with them.
The bulls may not have fully outwitted the bears on more than one fronts, they have certainly clinched the initiative from them on the strength of the amended rules relating to exposure limits, most analysts agree.
A 90-point increase in the KSE 100-share index and Rs22 billion rise in the total market capital, at 3,852.79 points and Rs824 million, reflect that the financial traders generally welcomed the central banks’s recent moves halting massive unloading by any quarter from the share business.
The amended rules are aimed at forestalling further panic liquidation by banks and financial institutions to protect the interest of small investors and restore sanity to stock trading. However, it goes to the inherent strength of the market that it managed to hold on to most of the gains netted in the strong mid-week rally and absorbed the unloading linked to the leading indexed shares.
Opinions are divided over the State Bank’s recent steps about the stock trading but all agree they have certainly arrested the persistent downward drift and had put the market well on the road to recovery. The positive response to the newly floated shares of the OGDC and its firm stance well above the benchmark price of Rs32 reflects that the market has acquired the needed depth. The State Bank says one year time is enough for the banks to adjust their positions in stocks to 20 per cent of their equity. But the KSE delegation which met the central bank governor early in the week, claims a two-year relief package. The controversy still exits, which not only halted the market’s sustained run-up to the index level of 4,000 points but also significantly eroded the value of leading indexed shares.
“The late weekend selling was literally directed against the leading index shares, notably the PTCL, the Hub-Power and the PSO in an apparent bid to demonstrate that the relief package should extend to two years not one year”, most analysts said.
But they ruled out the possibility of any major fresh selling by the banks or the financial institutions as one-year period is enough to meet the central bank’s demands and to readjust their exposure limits to 20 per cent of their equity.
The relief package triggered fresh institutional buying across the board at the current lower levels and put the market back on the rails in one go. Bank shares, being the chief beneficiary rose sharply higher under the lead of the Bank Al-Habib, the Askari Bank, the Bank of Punjab and the Faysal Bank. The market’s positive response to the relief package may well be had from the fact that the KSE 100-share index recovered 113 points in the post-package sessions, signalling it is advancing to the nearest target of 4,000 points. But the controversy over timeframe again pushed it into the minus territory.
Market capital also recovered a massive amount at Rs822 billion, reflecting good gains in most of the pivotals, notably the PSO and other energy shares.
“The market is expected to regain its past glory in due course. The central bank’s relief to big market players, including the banks and the DFIs have enough time to comply with the exposure limits”, says a leading analyst. “More important are allaying the fears of massive bank unloadings.
Under the amended prudential regulations, banks have been allowed to comply with their exposure limits within two years instead of December 31, 2003, while the Development Finance Institutions (DFIs) have been allowed some exemptions for their investment in shares.
The market has been under pressure since last week when the State Bank announced new prudential rules asking banks to tailor their investment in share business to 20 per cent of their equities by the end of the current year, which in turn triggered sell-stops from some leading banks.
What is more important is that the shares of public sector companies, billed as one of the most liquid shares, including the PTCL, the PSO, the Sui Northern, the Sui Southern, the National Bank, the National and Pakistan refineries will not be counted in 20 per cent ceiling of equity. These will provide a lot of manoeuvring leverage for the banks, the DFIs and some other big investors, brokers said.
The relief package, which is termed as a central bank’s gift to the bourse came after a high-powered delegation led by the KSE president met the central bank governor on November 10 and appraised him of the implications of the new rules and sought relief, which came instantly.
“The amendment came at a time when investors were in the process of applying for one of the largest IPO — the OGDC issue — which in turn is expected to make it more attractive both for the general investors and the financial institutions”, analysts said.
The OGDC also rose by limit-gain and was quoted around Rs39 after having fallen to Rs32 from Rs44 owing to the general selling.
Plus signs dominated the list after several lean sessions, gainers among them being the Packages, the Pakistan Services, the HinoPak Motors, the Ferozsons Lab, the PSO, the Clariant Pakistan, the Pakistan Oilfields and Javed Omer. There were several other good gainers also.
Losers were led by the Unilever Pakistan, followed by the Treet Corporation, Lawrencepur Woollen, Mehmood Textiles, Din Textiles, Island Textiles, Honda Atlas, Century Papers, Gatron Industries, Bhanero Textiles and the Pakistan Cables. Trading volume remained light, touching the lowest figure at 76 million shares and the highest at 175 million shares but there were no massive activities in any of the current favourites. The PSO, the FFC-Jordan Fertiliser, the PTCL, the Hub-Power and some secondliners, notably the Fauji Cement, the KESC, Dewan Motors and the Bosicor Pakistan and some others were leading among the most actives.
FORWARD COUNTER: Speculative issues on the other hand showed better performance and rose in unison under the lead of the PSO, which recovered Rs12 at Rs258 well above the recent lows. The PTCL and the Hub-Power also finished recovered though final gains were modest and so did the FFC-Jordan Fertiliser, the ICI Pakistan and other actives.—Muhammad Aslam