Unleashing of widespread selling pressure on Karachi Stock Exchange last week forced several players to leave the field, resulting in decline in CFS, which touched the 10 month low mark.
CFS investment at the weekend was recorded at 10-month low of Rs 10.9 billion whereas open interest at the futures counter was Rs 8.9 billion, a level seen after five months. This collectively resulted in reported leverage position of Rs 19.8 billion, which is only 0.7 percent of market capitalisation, or 3.7 percent of free-float (based on estimated 20 percent market free-float). This ratio is far lower than the average of last two years, which is 1.9 percent of market capitalisation, that is, 9 percent of free-float.
This signalled that a large number of investors were taking deliveries of shares, rather than financing, through CFS or derivatives market.
Moreover, CFS rate at Karachi bourse on Friday remained close to 12.7 percent. Similarly, the cost of carryover, that is, the spread between ready and futures, ended the week at 12.9 percent versus 5.7 percent of previous Friday--a jump of 731 basis points.
Last week was arguably the most dramatic and volatile week ever witnessed in the entire history of Karachi Stock Exchange. The KSE-100 index set both its worst ever single-day fall and highest ever single-day gain during the week, leaving the entire investment community baffled and clueless. The volatility of the market could be gauged from the fact that the market changed by over 400 points each day in four out of the five trading days, with a range of 1,083 points and an average daily movement of 385 points.
The activity in the futures counter remained dull throughout the week, which was evident from the sharp decline in the futures trading volumes, which stood at 55 million shares as compared to 84 million of previous week.
Open interest in the futures counter, which was already lower on previous Friday at Rs 9.42 billion, further slid to Rs 8.97 billion on last Friday (June 16).
Spreads, however, increased to 13.0 percent as compared to 6.0 percent of previous Friday owing mainly to some buying interest witnessed in the last two trading sessions.
Suleman Amir Ali, research analyst at Investcapital Securities, said that the volatility in the market was likely to continue in the next few weeks and the index might see exaggerated movements, both ways. "Our recommendation for investors would be to take advantage of this volatility by buying fundamentally strong scrips on dips. Our top picks are OGDC, NML, DGKC, FFBL and MCB."