The investment in badla market declined by 5 percent during last week because of lower share prices recorded but the badla rates were higher as overnight rates traded between 7 and 7.45 percent.
Total badla investment declined by Rs 1.4 billion or five percent to Rs 23.9 billion on Friday, compared to badla investment of Rs 25.2 billion on the previous Friday (Sep. 10). The reduction in badla investment was caused by lower equity prices and decline in badla volumes, indicating buying by institutions. Badla volumes had come down by 4 percent, to 453 million shares, on last Friday.
Abdul Rasheed, an analyst from Investcapital Securities, said that contrary to falling equity prices and declining badla investment trends, badla rates rose on weekend-to-weekend basis, mainly due to higher overnight lending rates in the money market. In fact, due to tight money market conditions, the banks had to avail discounting option to meet their cash requirements. Weighted average badla rate at KSE increased by 60 basis points to 7.9 percent on Friday. Weighted average badla rate at LSE was at 9.8 percent, thus rising by 180 basis points compared to previous Friday.
Rates in leading scrips remained in comfortable single-digit range. KSE badla rates in PSO, OGDC, and POL were at 8.5 percent, 7.0 percent, and 7.2 percent, respectively, on last Friday On induction of PPL into the KSE club on September 16, 2004, volumes at the stock market improved to 236.6 million as compared to 191 million on the very preceding day of the said date.
Southern Electric headed the COT chart in terms of badla rate that averaged out at 14.7 percent during the current week where the average badla rate at the KSE stood at 7.4 percent. The main reason behind such a high rate in Southern Electric was that the financers remained reluctant to enter the scrip because the company will be removed from the COT counter from October 8, 2004, as a first step towards the transition from badla to margin financing.
Genuine buying interest in D.G.Khan and NBP was witnessed. However, punters remained active in ICI where the average badla investment and average badla volume correspondingly shot up by 21.6 percent and 22.9 percent. The KSE management has included all the COT eligible securities in the Futures list. The October contract of the 29 stocks will open from Sep 20, 2004.
This will smoothen the transition from badla to margin financing, which will completely replace the badla market from June, 2005. In the short term, enhancement in Futures list may also reduce badla investment, as it is an alternative mode for leveraging. Badla rates are, however, expected not to come down significantly from the current level due to higher money market rates.
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