Not a Crash!: Market undergoes long overdue correction

Analysts say panic fuels selling; bourse will recover on back of strong fundamentals.

KARACHI:

The market witnessed a major correction on Tuesday, which was long due. The bourse has been witnessing minor corrections over the past weeks mainly due to political uncertainty. Analysts say that it was not a crash, but a major correction, and the fundamentals were still intact. Panic fuelled the selling frenzy and as the news on the political front develops, investors realise that the market was still stable.

Tuesday, January 15, marked a historic day at the largest stock market of Pakistan. The Karachi bourse witnessed a reversal in trend amid political fog that drove sentiments in the country.

Political uncertainty created by Tahirul Qadri’s ‘million-man march’ and rally in Islamabad was further compounded by Supreme Court orders the arrest of the prime minister over possible corruption charges.

On January 3, 2012, the Karachi Stock Exchange (KSE) index was at 11,402 points and touched an all-time high level of 16,943 points on December 28, 2012. The rally was without any significant correction.

However on Tuesday, The KSE’s benchmark 100-share index dived 525.29 points (3.16%) to break its fall at the 16,107.89 point level. Trading activity surged clocking in at 239 million shares as panic fueled selling frenzy at the local bourse.

It is only the fourth time that the KSE has fallen by more than 500 points. The last time was in May 2008, when equities fell due to the impact of global financial crises, according to Reuters.

The day started dull as all eyes were on the ongoing protest in the capital demanding dissolution of the country. However, news on orders of arrest of the premier sent shock waves where blue-chips started to tumble due to the forceful selling pressure.

Commenting on the day’s trading activity, Azfar Naseem, head of research at Elixir Securities, said, “Panic fuelled the selling frenzy.” The market had remained stable over the years and will recover, once political situation simmers down. Naseem says that the market may be down today.

Shares of 378 companies were traded on the second trading session of the week. At the end of the day 15 stocks closed higher, 335 declined while 28 remained unchanged. The value of shares traded during the day was Rs5.29 billion.

Fauji Cement was the volume leader with 43 million shares shedding Rs0.38 to finish at Rs6.66. It was followed by Byco Petroleum with 20 million shares falling Rs0.61 to close at Rs12.53 and TRG Pakistan with 18.5 million shares losing Rs0.07 to close at Rs5.91.

Analysts expect news flows on the political front to guide the direction of the market in the days ahead.

When contacted for comments by The Express Tribune, Kashif Mustafa, Head of Business Development at Lakson Investments, said, “The market, for now, will continue on the correction path in the light of political uncertainty. Once political fog clears, the market will rebound on its bullish trend as fundamentals still remain intact, along with earnings season coming up.”

Speaking on the outlook of the bourse if decision is made on the caretaker government or announcement of the date of elections, Elixir Securities research head Naseem points out that historically speaking, in the short-term elections fuel optimism and a feel-good factor regarding the new government, whether interim or permanent. “Election news in the short-term will have a positive impact.” However, in the long-term no significant change was expected and optimism will be unsustainable.

Commenting on the attitude of foreigners towards the market, Arif Habib Corporation Head of Research Khurram Shahzad said the foreign attitude towards the Pakistani market is upbeat. Regional peers continue to climb; therefore Pakistan offers better valuations for foreigners than regional peers.

Foreign institutional investors were net sellers of Rs12.2 million, according to data maintained by the National Clearing Company of Pakistan Limited.

Published in The Express Tribune, January 16^th, 2013.

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