The share market last week witnessed its worst crisis as KSE index plunged more than 16 percent, with volume in key stocks dropping drastically and several investors and stock brokers suffered mammoth losses because of the pending March Futures contracts. All players, observers and institutions witnessed the darkest week in the history of the local bourses. KSE had become a market where there were only a negligible number of buyers and an increasingly greater number of sellers each day.
Stock market players saw the KSE-100 Index plummet 1534 points, or 16.2 percent, to end up at 7965 from 9499. And this, too, was better than what the situation could have been if there were not a holiday on Wednesday, March 23.
The badla market was slowly and gradually heading towards its planned termination, with volumes drying up thick and fast. However, the reluctance of badla financiers to participate was evident from the crazy level of badla rates being seen at LSE.
During the week brokers, investors and regulatory bodies remained concerned about settlement of the March contracts. The Board of Directors of KSE issued a notice regarding extension of March contracts settlement date, which was later withdrawn.
The market continued its free-fall and the index, after opening in the negative column, steeply dropped below 8,000 mark losing more than 300 points on Friday. All blue-chip stocks were unable to attract buyers as they were capped in early part of the session and investors were unable to wipe out their holdings of the future contracts, which were supposed to be squared in that session. Now they would be carried on through badla.
During the week, the average volumes were 135 million shares as opposed to 538 million shares of previous week.
A leading trader said that although fundamentally strong stocks offered value from current levels, "we advised investors to hold their horses until the market took a breather. Fertiliser and cement sectors looked attractive at current levels".
In view of the conflicting statements given by KSE management and stock brokers, it was difficult to determine who is to blame for this abnormal activity prevailing in the market.
This aside, the KSE-100 index has lost 2338 points, or 23 percent, over the last seven days, and shed almost US$8 billion of market capitalisation, bringing it down to below $38 billion compared to the high of over $46 billion during previous week.
Tied up exposures and liquidity crunches put brokers in a straitjacket restraining any covering at lower levels to stop the free fall.
The March settlement crunch pushed market participants in dire straits with the weak holders still unable to book their losses. Much expected institutional support did not come to save the market, compounding the misery of participants manifold. "It's hard to believe that the market that was vying to become the most liquid in the region has suddenly become the most illiquid," one analyst said.
Ready Future spreads radically shrunk down, amid low volumes, on the back of bearish trend prevailing in the market. Punters had already expressed their views that the Ready Future spread represents investors' outlook for the market and the leveraged cost they are willing to pay. Declining Ready Future spreads reflect investors' expectation about the market in short term.
Weighted average annualised spreads slipped down by 6,680 bps to 25.17 percent on Friday from 91.77 percent on previous weekend. And the average daily volume stood at 93.7 million shares, or 17.4 billion rupees. During the outgoing week the average daily Futures volume was 69 percent of ready market and 175 percent in rupee terms.
BADLA RATES RISE TO 24 PERCENT: The weighted average badla rate at KSE last Friday, March 25, ventured into higher territory owing to rise in the upper limit from 18 percent to 24 percent in order to attract badla financing.
The badla rate on Friday was higher when compared to previous Friday's (March 18) weighted average KSE badla rate of 17.9 percent.
The KSE, in one of its announcement at the weekend increased the Carry Over Transactions (CoT) upper limit by 600 bps from 18 percent to 24 percent, effective from March 25, 2005 till April 8, 2005. This was done in order to attract new funds in the market so that investors can roll over their position maturing in the March contracts.
"We believe that if there was no limit on how high the badla rate could go, the situation might have been such that we could have witnessed triple-digit rates", an analyst from Investcapital Securities said.
However, the LSE badla market has become all too accustomed to triple-digit badla rates. The weighted average badla rate at LSE touched an unfathomable level of 920.7 percent last Friday. This represents a skyrocketing rise from 135.2 percent seen on the previous Friday. With lenders earning such exorbitant amounts for badla financing, there is still no fresh money flowing into the badla market due to the rapid erosion of share values.
Badla investment figures for KSE remained incomplete as of Friday (March 25) as the Exchange management provided another opportunity on Saturday (March 26) from 11:00 am to 1:00 pm for weak holders to seek badla financing. Released badla investment at KSE on Friday stood at Rs 7.7 billion on Friday, which is higher than Rs 5.2 billion on Thursday.
The badla at LSE was completed on Friday. Badla investment at LSE stood at Rs 3.5 billion last Friday, versus Rs4.4 billion seen on the previous Friday.