The formal listing of Oil & Gas Development Co (OGDC) and improvement in share prices increased the badla investment last week to Rs 24 billion, a four-month high level.
The KSE-100 index surpassed the 4700 mark amid rising volume, and as the index created yet another all-time high. History was being re-written almost every other day.
With rising equity market, badla market also witnessed increase in investment, reflecting the market's highly leveraged and overbought position. Entry of OGDC in the CoT market from this week also affected the overall badla financing requirements.
An analyst from Investcapital Securities said that on the first day of the week (Monday, Jan 19), clearing arrangements were transferred to NCSS.
The same day, badla transactions in a few scrips were carried
out at rates beyond the 18 percent cap imposed by the KSE. The reason for this was change in symbols of NCSS eligible securities, due to which capping of maximum rate limit could not be enforced.
The KSE, in a notice issued to all members, decided to cap all badla transactions (at 18 percent) carried out over and above the 18 percent rate. There was also a special session on January 20, arranged for leveraged buyers who could not obtain badla financing on January 19.
Weighted average badla rate touched 15.7 percent on Jan 23 (Friday) at KSE, increasing by 3.6 percent over the week from 12.1 percent on the previous weekend. In the last 5 sessions of the week, the overall share financing rate hovered between 14 and 17 percent due to rising badla volumes and higher share prices.
There were also occasions where there were borrowers but no lenders, especially in small cap shares.
At LSE, weighted average badla rate reached 14.5 percent on Friday (Jan 23), an increase of 3.2 percent from previous weekend. The gross average badla rate also touched 21 percent mark on Jan. 20.
Badla financing at Karachi bourse reached a 4-month high level of Rs 21 billion at the weekend, an increase of Rs 1.7 billion from previous weekend.
Entry of OGDC in the badla market, rally in DG Khan and rising share prices have contributed towards increase in badla financing.
At LSE, badla investment reached Rs 2.8 billion on Friday from Rs 2.6 billion on last Friday.
Unless the highly leveraged positions are squared off, the badla market will remain tight and cash-starved. A downward correction is therefore necessary to cool down the rising badla rates which in the past have caused a panic-like selling.
Despite very liquid money market where overnight rates are below 1 percent, high rates in badla market clearly signal that badla financiers are reluctant to lend against shares at these inflated equity prices.
During the last week PSO, Pakistan Oilfields, and OGDC remained the top three-badla scrips in value terms while Hubco stood on the fourth slot in value terms. Looking at the recent past, Hubco was one of those scrip which mostly hovers within the top three positions in the COT market.
However, this week it was replaced by OGDC, which continued to remain in spotlight at the badla market during the current week, which is already glittering at the KSE-100 for quite some time, said an analyst from Capital One Equities.
Coming back to the top three-badla scrips, the average COT investment in PSO stood at Rs 2.97 billion while Pakistan Oilfields and OGDC held a corresponding 15 percent and 8 percent market share based on average COT investment during the current week.
The COT investment may continue to follow the pattern of market capitalisation in the near future, which is likely to take further upside (highest ever market capitalisation was 1.248 trillion on January 22, 2003; $ 22 billion).
This is in line with the general perception that the KSE 100-index still has the ability to drift higher in the future and touch 5000 mark.
One can count on this notion given the upcoming IPO of SSGC, Kot Addu and PPL, which would certainly add to the market's depth and breadth in the long run.
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