The absence of all-important retail investors appears to be a blessing in disguise for the country's stocks market which, on-and-off, feels the heat of declining international crude oil prices. The market participants came up with a mixed response while analysing the impact of the current southward trend in US WTI prices, having shrunk to record $44 a barrel during last 24 hours, on the country's equity market.
While some foresee a short-term correction for the otherwise booming KSE 100-index, others warn of an incipient danger haunting the country's fragile economy that, they believe, has necessitated it for the terrorism-focused government to manage the economy. Ashen Mehanti, a director at Arif Habib Corporation, views that the oil factor is unlikely to take a heavier toll on local bourses, thanks to the strong institutional investors who hold the market's majority shareholdings.
According to a 'general understanding', the analyst said that while 70 percent of the listed shares at Karachi Stocks Exchange (KSE) were held by the sponsors or holding companies, much of the balance 30 percent was in the safe hands of strong institutional investors.
"Even this 30 percent free-float is divided between institutions, retailers and mutual funds," Mehanti told Business Recorder. The market, he said, was dominated by the long-term investors who were analysing fluctuation in global crude oil prices accordingly. Under pressure though, the oil and gas scrips, the analyst said, had safe heavens like the Pakistan State Oil (PSO) protected by the government through keeping its "frozen" shares with other state-run enterprises like PICIC and PIA Provident Fund. "Oil prices have further downed to $44 (per barrel) but PSO and PARCO borne a contraction ranging from Rs 3-4 only," he said.
The analyst opines that while retail investors are nominal at the stocks market in number their institutional counterparts "don't offload easily". At worst, Mehanti says, a "short-term correction" is likely at KSE and that too would be rectified in case of a rebound in oil prices. "PARCO would hit its upper lock if the oil prices rebounded to $50 (level)," he said. Yasin Lakhani, a director at KSE's board, seconded Mehanti saying that the benchmark index would skyrocket to cross the 40,000 points mark in case of a rebound.
"The scrips related to energy sector may see a value improvement of Rs 100-150," the senior broker said adding the issue of oil prices is "politically motivated" that could be resolved anytime leading to a definite rebound. "Only those holding power and patience would prevail," he said of the equity investors. Aqeel Karim Dhedi, chairman of AKD Group and a leading stocks broker, feels otherwise. "This apparent decline in oil prices to $44 is dangerous," the businessman told Business Recorder. The dip is huge in global oil prices, a barrel of which once used to be priced at $128.
"It would equally reflect on the country's declining exports like that of cotton and other commodities," AKD said. Heavily reliant on oil imports, the broker said, the government of energy-scarce Pakistan must rush to manage the economy. "With oil prices declining the commodity prices too are downing. It is time for economic management. You must see how far the people's purchasing power is eroded," he viewed.
The senior broker advised the equity investors to stay cautious, especially in long-term investment. "KSE is in a situation that requires the investors to monitor values (of the scrips) on day-to-day basis," said AKD. Tuesday saw Karachi stocks market feel the heat of a historic slump in international oil prices that made the otherwise record-breaking KSE 100-share index lose 47 points to close at 33,371.29 points. With oil exploration firms 'under pressure', index heavyweights like OGDC, POL and PPL were the major losers, each falling over two percent.