KSE-100 index remains range-bound
Excessive selling by foreign fund managers mostly
By SHABBIR H. KAZMI
May 07 - 13, 2001
Since January this year, economic fundamentals for
Pakistan have improved a lot but large scale selling by foreign fund
managers has kept the market range-bound. The situation can be described
in two ways. Some say that it was an exhibition of strength of market
and others believe that supply was more than the appetite of the market.
However, unless fresh funds are diverted to equities market, the
probability of sustained improvement in KSE-100 index may not be there.
The factors which should have built investors'
confidence failed in triggering buying euphoria. These were the stand-by
funding arrangement with the IMF and timely release of tranches,
resolution of long outstanding dispute between WAPDA and HUBCO, large
scale dividend payout by textile companies and bright prospects for
Pakistan to enter into PRGF programme. However, the large scale
depreciation of Pak rupee lured investors to divert their funds to money
market — for the purchase of dollars. While the Badla
rates were still low, the large scale selling by foreign managers
created surplus supply. PTCL share prices eroded considerably due to
off-loading of investment by foreign managers. This was not unique for
Pakistan, the same has been observed in other Asian markets. Bulk of the
quantities were picked up by local investors instantly. However, these
investors were not ready to take long positions and there was constant
erosion in price.
During last couple of weeks while prices of some of
the blue chips and volume leaders eroded, daily trading volume of some
of the scrips increased considerably. To some extent this buying was
based on expected results but largely on rumours. Analysts say that
interest in Muslim Commercial Bank may be genuine but movement in
Adamjee Insurance share price is not understandable. Similarly, the
upward movement of prices of shares of Nishat Group's other companies,
on the news that the Group had acquired a large stake in Adamjee
Insurance is a unexplainable feature.
Therefore, these analysts tend to believe that it was
an activity of market manipulators. The reason for this belief is that
manipulators were able to move HUBCO share prices, in the past, and
after the resolution of tariff issue, they are on a constant haunt for
the scrips whose prices can be maneuvered rather conveniently. Karachi
Stock Exchange and Securities and Exchange Commission of Pakistan (SECP)
have taken various steps to check price manipulation by a few. However,
unless brokers follow the code of conduct, real investors may not feel
comfortable in investing in equities.
There is also a need to understand the reasons not
allowing the investors to take long positions. The lack of interest in
HUBCO was due to the lag in ratification of terms and condition
stipulated in the agreement. However, the biggest uncertainty was about
the possible dividend payout. Persistent erosion in PTCL prices was due
to sale by fund managers who were off-loading their stake throughout
Asia. This also creates apprehensions about privatization of telecom
company which will also loose its monopoly status shortly. Investors are
equally reluctant to take long positions in shares of fertilizer
companies — not because of any immediate threat affecting their
profitability but due to extraordinary delay in announcing the policy.
The lack of interest in textile companies is for a
number of reasons. Though, a large number of companies belonging to this
sector have declared very high dividend for the year ending September
30, 2000, there is a strong apprehension that they may not be able to
replicate due to higher raw cotton prices. On top of everything most of
the textile companies have small capital base. Shares of good performing
companies are mostly held by the sponsors or their associate companies.
Though, it has been stated by the economic managers
repeatedly that some percentage of shares of selected companies would be
sold through stock exchanges, the process is moving at snail's pace.
People have hardly any interest in buying shares of nationalized
commercial banks (NCBs). While efforts are being made to transfer
non-performing loans to Corporate and Industrial Restructuring
Corporation and clean up slate of NCBs, the process may take many
All eyes are on federal budget for the financial year
2001-2002. If the GoP decides to cut some duties and taxes, meeting
revenue collection will become more difficult. Unless concerted efforts
are made to broaden the tax base, increase collection of tax on agri
income and restructure tax collecting regime the GoP will not be able to
reduce budget deficit.