Updated July 23, 2005



Since the March crisis the KSE-100 index has been moving in a narrow bandwidth. However, on many days market has witnessed extreme volatility. A lot many analysts attribute this volatile movement of the index to Badla phase out. However, low daily trading volume forces one to make a little deeper probe. Interestingly the immediate conclusion is that neither Badla phase out nor inadequate availability of margin financing is the key issue. The real issue is that investors, who are sitting on piles of scrips, cannot offload their holdings. Due to exceptionally low market appetite offloading of the smallest lots plunges prices - there are too many sellers but buyers even at these values are virtually missing. Can anyone say that PTCL at current price is unattractive?

It is not only PTCL, most of the volume leaders and blue chips are available at very attractive prices. However, unless the investors are able to shed the load they are carrying, they cannot make fresh buying. They have to sell part of their current holdings at profit to take new positions. According to an analyst, "Market needs injection of about Rs 50 billion to overcome the present liquidity crunch. The amount may sound a little outrageous but keeping in view the fact that the prevailing liquidity has been utilized the amount seems reasonable."

A closer look at the KSE-100 index graph tells that it touched a high of 10,303 level on 15th March. Since then it has declined to a low of 6,477 on 27th May and then hovering in a narrow bandwidth. The average daily trading volume is also very low. A question is often asked, will the brokerage houses be able to survive on such low volumes? The overwhelming consensus is that most of the brokerage houses will face an extremely difficult situation if volume remains at current level. In such a scenario the immediate fallout will be massive retrenchment.

Prior to the crisis, exceptional response was witnessed to initial public offerings and public offering of shares of state-owned enterprises. However, in the post-crisis period most of the offerings remained grossly undersubscribed. United Bank IPO was subscribed to the tune of 42 percent. The worst outcome was in case of Eye Television, receiving less than 3 percent subscription only despite being an outshoot of Jahangir Siddiqui & Company. Zephyr Textiles IPO got a subscription of less than 10 percent. Chenab offering is expected to the tune of 30-35 percent. However, it is believed that NetSol offering would be oversubscribed. This has become possible mainly due to exceptionally large subscription from Punjab. The response from Karachi is said to be lackluster.



It was often said that in the rising interest rates scenario funds will start moving away from the equities market. The fact is that rates have already started flattening. The point has been reinforced at the latest auction of the Treasury Bills. At the last auction the State Bank of Pakistan also did not show any inclination towards raising yields substantially. In the most recent auction the largest amount was raised through 12-month T-Bills. This clearly indicates that while the central bank is looking forward to locking longer term funds, it also does not wish to raise yield on three and six month bills.

The only silver lining is the expectation of attractive corporate results. Quarterly and half yearly results for the period ending 30th June have already started pouring in. Fauji Fertilizer bin Qasim has announced 12.5 percent interim dividend. PICIC Growth Fund has declared 35 percent final dividend. It had already declared 25 percent stock dividend. PICIC Investment Fund also declared 20 percent final dividend, raising the total dividend payout for the full year to 35 percent.

A sector to be watched specifically is banking. Three banks namely Bank of Punjab, Faysal Bank and National Bank have gotten a big boost in earnings due to record dividend payout by the NIT. These banks hold very large number of NIT units. Almost all the banks are expected to post higher profit due to hike in credit off-take by the private sector and improved spreads. Their fee-based income is also expected to be higher due to rising import/export business.

The latest dampener for the market sentiments is the directive of the Securities and Exchange Commission of Pakistan to the Karachi Stock Exchange. In this directive the SECP has directed the KSE to disseminate information of the top 15 brokers for each futures contract on daily basis. The position of these brokers would be posted on the KSE website, without mentioning whether the broker is net buyer or seller to maintain the secrecy.