THE above expected dividend, announced by some of the leading companies, including the Hub-Power and some banks — notably the MCB and the Askari Bank — and a fresh aid package by the US did boost the mid-week stock market but the follow-up turned shy.
However, investors appeared to be in a mood to take profits at the inflated levels and they cashed in on the available margins to start anew when the trading resumes next week. And in the process the total market capitalization eroded Rs17 billion at Rs383.236 billion as compared to Rs400.318 billion a week — the level attained after about two years. The highest figure at Rs610 billion hitting the market in mid-90s, is still a record.
After having received massive battering, the Karachi stocks managed to finish well above the lows, aided largely by above-the-market interim dividend of 40 per cent by the Hub-Power and reports of a loan write-off of $1 billion by the US, as a good-will gesture to President Musharraf’s assistance in fighting the terrorism.
The KSE 100-share index, which tested the two-year highs at 1,805 points fell by 120 points during the first three sessions of the week before a handsome dividend announced by the Hub-Power rescued the market from a possible crash. It finally ended at 1,703.58 after touching the week’s lowest at 1,666.41 points.
“It was a technical correction in a highly overbought market but as the basic fundamentals are bullish, the market is not that vulnerable to bear any onslaught”, stock analysts at the W.E. Financials predict.
Sky may not be the limit, the developing financial scenario reflects that only fools could miss the bandwagon, although correction in the Engro Chemical, which has touched the seasonal peak of Rs82 has assumed an alarming proportion, they added. The PSO followed the reports of lower sales owing to erratic prices.
Opinions, however, were divided over the early sell-off and snap-reversal. Some say it was a technical correction, while others claim the run-up was speculative and met its logical end. It could well be described, “a correction in a highly oversold market, which has risen by 30 per cent during the last couple of sessions”.
The mid-week plunge of about 5 per cent on panic-selling was beyond the market mandate. The unloadings prompted by a spate of negative rumours, including the defaults and compliance notices in regard to capital adequacy requirements. The KSE high-ups had to suspend the trading briefly, after the index fell by over 90 points, to forestall a possible crash.
Under the capital adequacy requirements, the KSE members are not allowed to do business beyond their capital base of 25 per cent. The step is taken to prevent possible default in case of speculative trading.
Forward counter also followed the lead of the ready section where blue chips fell like house of cards under the lead of Engro Chemical and the ICI Pakistan, which fell by Rs5.35 and 2.90 at Rs77.31 and 48.60 followed by the Fauji Fertiliser and the PSO.
“The chief factor behind the sell-off was claimed members’ compliance to capital adequacy requirements within the five trading sessions after the issue of notice and a failure could lead to switching off their KATS terminals”, says a leading KSE member and that caused the market collapse from the recent highs”.
The KSE authorities later attributed the 40 minutes suspension to technical problems in the computer system and the trading was resumed after the defect was removed.
“However, the early steep decline in index value is not fully reflective of the broader market’s relative strength”, stock analysts at the Moosani Securities say adding “push the share value of the PTCL and the Hub-Power by Re1 or so, the index will collapse as both have over 40 per cent weightage, creating panicky atmosphere”.
“I don’t think bears have more than one negative reasons to hold sway”, a stock analyst at the AHRL claim, “it may now not be that easy to kill two birds with one stone in the changed financial scenario”.
The market resumed trading on a negative note partly because of the last two sessions’ sell-off and soon the rumour came that the KSE will suspend the memberships of those who will not submit their capital adequacy reports by the end of the current month followed by the rumours of default by a prominent member.
“The real villain behind the game appears to be the market’s highly overbought position, which needed correction” analysts said, “but bulls were not inclined to loosen their grip on the price line owing to strong positive economic fundamentals”.
But the market could rebound in the same fashion as it fell during the last three session, shedding 120 points on the strength of bullish fundamentals. Positive outcome of President Musharraf’s meeting with Bush could put the market back on rails even tomorrow, they added.
Some negative rumours were needed to break the hold of bulls which came in various forms despite President’s meeting with Bush and the market talk of a fresh aid package and larger market access for textiles in the US import channels. Energy shares led the market decline falling sharply lower for Pakistan Oilfields, the PSO and Shell Pakistan, followed by pivotals such as Adamjee Insurance, the BOC Pakistan, Engro Chemical, Fauji Fertiliser, the ICI Pakistan. Lever Brothers fell by Rs39. But all recovered at the fag end of the week.
Most of the gains were fractional barring the Clover Pakistan, Al-Abbas Sugar, Tariq Glass, the PICIC Commercial Bank, Nestle MilkPak and the Crescent Steel, Grays of Cambridge, Siemens Pakistan.
Trading volume was on the higher side at 1.254 billion shares, about 75 per cent of which was shared by the Hub-Power and the PTCL followed by the Sui Northern, the PSO, Engro Chemical and Fauji Fertiliser.
Other actives were led by the ICI Pakistan, the D.G.Khan Cement, the KESC, the MCB, the FFC-Jordan Fertiliser, Japan Power, Maple Leaf Cement, Dewan Salman, Lucky Cement and several others.—Muhammad Aslam