The weighted average badla rate at KSE on Friday, July 22, increased to 14.4 percent as compared to 11.5 percent on the previous Friday (July 15), showing an increase of 290 basis points, because of tight liquidity in the money market and reluctance on the part of financers.
Whereas the rivers are flooded, volumes in the stock market seem to have dried up as average weekly volumes recorded their 19-month low since November 2003. Average ready market volume was just 134 million shares during the week compared to 163 million shares in the previous week.
The KSE-100 index fell by 2.4 percent (182 points) to close the week at 7353.85 points.
Total leverage at the KSE ie badla investment and futures open interest combined declined slightly from its position seen on the previous weekend, as badla amount stayed put at Rs12 billion and open interest in the futures declined slightly making room for rollover to take place in the next week.
According to a report prepared by Investcapital Securities, availability of badla had become a game of chance as only the first few contenders got their hands on it, within the first few seconds. Due to this shortage of badla, the rates depicted a sharp rise from the last week. The State Bank kept the cut-off rates of all three tenors intact in the T-Bill auction during the week.
Badla investment increased slightly from Rs 11.8 billion to Rs 12 billion staying close to the upper limit placed on badla investment at Rs 12 billion all through the week. Even though the investment increased slightly, badla volume decreased from 115 million shares on previous Friday (July 15) to 107 million shares on last Friday (July 22), declining by 7 percent week-on-week basis. The increase in badla investment despite lower volumes and lower prices was due to higher leverage being done in shares of higher value such as POL and PSO and finishing off leverage in shares of relatively lower value like Hubco and DGKC.
The weighted average badla rate at LSE fell to 9.9 percent on Friday, versus 10.8 percent on previous Friday. Balda investment at the LSE further shrank to Rs 867 million on Friday from Rs 969 million on previous Friday. Volume at LSE also declined from 10.7 million shares on previous Friday (July 15) to 9.9 million shares (July 22).
The local stock futures market at KSE also saw a decline in open interest as well as rates. The futures spread at KSE further came into single digit rates as rates fell from 14.1 percent on the previous Friday (July 15) to a mere 6.4 percent on last Friday (July 22).
Open interest in the stock futures market declined from Rs 11.1 billion last weekend to Rs 10.1 billion amid negative market sentiments and the fact that August futures will be available in the market from next week, this week being the last week of July futures. In terms of number of shares, open interest at KSE declined from 101 million shares to 94.6 million shares.
Total leverage not including margin financing (badla investment and futures open interest) stood at Rs 22.1 billion on last Friday (July 22) down from previous Friday''s Rs 22.9 billion declining by around 3.5 percent on a weekend to weekend basis.
Coming week would be the last week for July futures where transition of leverage position from July to August futures will be witnessed. The fate of badla is still undecided as the July 16 meeting bore no fruit and another meeting is to be held on July 22. Volumes will make their comeback to the market as and when this uncertainty ends.
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