Nov 03 - 09, 2008

While the much hyped restoration of judiciary continues to occupy prominent space in the media, if not the headlines, one wonders who is going to bring to the books those who have torn apart the economic fiber of this country by resorting to mindless political adventurism. We are profusely bleeding and our efforts to plug one source of bleeding result in to two more.

The complex external liquidity issue, the resistant inflation defying oil and commodity prices fall, the sliding rupee and the on-ventilator stock market; a host of self created problems stare us in the face but we seem to be held hostage to inaction and indecision.

Another extension to the floor-regime of stock market - this time without any timeline - has kept the stock investors on tenterhooks prolonging their agony beyond their tolerance limit. The home work prior to the lifting of floor condition seems to be off-line as wait and see syndrome has taken over those responsible for sorting out the matter. Funds around Rs.150 billion have been placed with the NIT but any clear cut strategy to launch the rescue operation is ostensibly missing.

These funds include Rs.30 billion on account of government guaranteed 'put option' funds for foreign investors. These options with one year maturity and backed by sovereign guarantee could be exercised in case of seven public sector and two private sector stocks namely OGDC, PPL, PSO, SSGC, SNGPL, KAPCO, NBP, HBL and PTCL. The overriding concern behind the floor philosophy is the feared exit of foreign portfolio investment to the tune of $2 billion. If this is true, then assigning of an insufficient sum of Rs.30 billion for put option funds is intriguing.

The delay in deciding the fate of stock market seems to be strategic on one hand and mandatory on the other, as country's economic managers are bracing up for the coming month's Abu Dhabi meeting with the Friends of Pakistan group. Only after this meeting, the decision to forego or to opt for the IMF program will be taken. In short, stock market doesn't seem to be on the top of economic managers' agenda - hence the unlimited floor extension. Whatever the case, an early resolution of the issue will have to be sought. Taking the bull by horn was never as relevant to anything else as to the present Pakistan stock market situation.


During the last three years, our stock market operations have been nothing short of a roller coaster drive. If we take December 2005 index as the starting point, we are almost back to that very point after a three-year exciting journey. When seen from market capitalization angle, the net result is almost the same - small minus / plus notwithstanding. This is what a roller coaster drive is all about; we all have to come back to the starting point after going through some moments of extreme thrill, chilling fear and in some cases, destabilizing emotional upheavals. The table below presents a view of turns and twists our economy has taken during the period from December 2005 to October 2008. The KSE-100 index, after causing severe tremors during the last 38 months has been made to stay around 9000 mark.

Lifting of floor, may see the index plunge to 8000 level, but by the end of the current calendar year, the likelihood is that it will rebound to occupy the 9000 level. And this is what our stock market is presently worth. We should now learn to live with this level for the coming two or three years. Calendar year 2007 was the year of most prolific gains when market capitalization recorded an increase of Rs.1,776 billion. The gains were not only consolidated but fractionally increased during the first quarter of CY 2008. The second and third quarters of CY 2008, incidentally the period of transition from the so called autocratic to the democratic rule, spelled doom for the stock market business when market capitalization worth Rs.1,716 billion was wiped off. Economics is a state of investors' mind and it does not recognize political systems!





2008 APRIL-15

OCT -23

KSE-100 Index






Market capitalization






Increase as compared to last year.






% Increase as compared to last year






Increase a compared to base year






% increase as compared to base year 2005






We should hope that the external liquidity issue is soon resolved and the economic managers are free to focus on the next most important issue that is the restoration of stock market to its normal way of operation. Removal of floor will definitely trigger selling euphoria. We will have to stay fingers-crossed to see that it does not cause a very severe dent in the market.

The funds should be used very prudently for which a strategy has to be drawn well in advance. The strategy should have certain open ends with back up plans (A, B, C etc). Off-the-session sales and purchases at around 12 to 15 percent discount suggest that we should be mentally prepared to see a further slide of around 1000 points. Initially, we can plan to remove the floor for three days with the downside 5 per cent circuit breakers in operation. In the worst scenario case, the prices of leading scrips will come down by 15 per cent. After three days, we can do the stock taking to see if we can continue with the plan A or should change our strategy in favor of plan B etc. The three days will give us an insight into the foreign investors' action plan. In case the Rs.30 billion put option fund is utilized swiftly, we should be prepared to transfer more money to replenish this fund. The bottom line is that the plunge has to be taken anyway; yet immaculate advance planning can definitely save the day.