THE DIRECTIONLESS MOVEMENT
OF THE INDEX
Can HUBCO trigger the buying euphoria?
By SHABBIR H. KAZMI
May 22 - 28, 2000
At the face value, the movement of KSE-100 index during the month was a bit difficult to understand. While some pundits are trying to link the movement with the global equities market, many analysts do not find any correlation, whatsoever. Globally the movement was due to technology related corporations. Whereas in Pakistan, it was mainly due to sudden selling pressure in the most active scrips category and without any change in fundamentals.
According to an analyst last week was an extremely volatile week at the Karachi Stock Exchange as the tussle between the bulls and bears pushed the index in different directions. A state of uncertainties ruled the market. The first two sessions of the last week witnessed massive selling, which pushed the KSE-100 index to an 18 weeks low of 1551 points. Then came a massive correction. On the last day of trading market once again came under pressure due to strike call. However, the synthetic sector and Engro Chemical pushed the index to 1681 points.
During the past week the most striking feature was the price movement of PTCL shares. The stock price, after the recovery once again plunged to as low as Rs 25. It also failed in attracting much of an interest despite announcement of financial results for the nine months period. The same was also true for Fauji Fertilizer and other active scrips.
A group of analysts has been pinpointing, for a long time, that trading volume and price movement has been determined by a few groups who have the advantage of undue information and excessive financing facilities from financial institutions. Lately some of the commercial banks have been suffering from 'surplus liquidity crisis'. Since these groups offer active and liquid stocks of companies enjoying sound fundamentals, the banks are ready to dish out as high as 80 per cent against pledging of these shares. However, the borrowing has increased manifold by pledging the stocks bought against pledging. These analysts also expressed concerns at the attitude of banks lending against shares being bought only for trading purpose,
The magnitude of the holding, on the basis of funds acquired from commercial banks, can be gauged by accumulation of the number of shares in a few hands. Some analysts say that such holdings are in millions of shares of the active scrips at a particular point of time. The holding were reported like 90 million shares of HUBCO, 60 million shares of PTCL, 25 million shares of SSGC, 20 million shares of Adamjee Insurance Company etc.
It appears that commercial banks have been a little careless in extending funds for purchase of shares. Therefore, the apprehensions of analysts should be a source of concern, particularly for State Bank of Pakistan. One may say that the central bank has become a little sluggish or has not been able to quantify the adverse impact of such lending if the bubble bursts one day.
The central bank must take a clue from the unconfirmed news that one of the brokers lost his card as a result of default. The amount of default was said to be around Rs 40 million. The news was termed baseless by the Karachi Stock Exchange sources. However, the general impression is that now the card belong to those who came for the rescue and one has to wait for the official announcement.
The management of all the three stock exchanges operating in Pakistan should also look at the exposure limits of all the members. There is a general feeling that many brokers are taking positions much above their respective exposure limits. This is being done mainly due to low Badla rate prevailing for the time being. Low rate also confirm the excessive lending against shares by the commercial banks. Some analysts say that banks are too happy on the rate at which funds are being extended.
HUBCO has been termed the biggest swing factor as all eyes are on the high-powered meeting in Dubai on May 20. According to reports, the World Bank has arranged the meeting. In case the meeting ends on a positive note, the market could once again resume its bullish tune.
Another factor to note is that budget would be announced on June 17 and not June 3 as was expected previously. This may dampen the sentiments of those who were banking on a likely pre-budget rally in the first week of June to change the downward direction of the market. However, any positive development on HUBCO front can be a determining factor as to which side of the fence investors play on.
Volume Index (mn shares) 1-May-00 271.49 1,920.88 2-May-00 249.12 1,873.94 3-May-00 267.02 1,883.94 4-May-00 241.55 1,859.88 5-May-00 260.21 1,807.31 8-May-00 227.49 1,803.60 9-May-00 217.64 1,738.09 10-May-00 211.80 1769.58 11-May-00 255.97 1723.67 12-May-00 242.70 1,672.47 15-May-00 295.06 1,632.14 16-May-00 315.73 1,551.73 17-May-00 275.67 1,650.53 18-May-00 372.02 1,655.75