Biggest weekly decline since 2008-09 after policy rate cut, KSE-100 index down 15% wow
Summary
Economists, industrialist and traders have termed the 75 basis points reduction in policy rate by SBP this week as ‘nominal’ and a ‘joke’ and not an appropriate response to deal with the coronavirus challenge and domestic ground realities. As such we saw ‘blood bath’ at the stock which triggered six ‘market halts’. The KSE-100 Index lost 5,393 points to close at 30,667.41 on Friday. On Thursday, the KSE-100 Index stoops as low as 28,453.05, which was the lowest level of March 2015.
Over all during the week, market capitalization loss was Rs.888 million as market capitalization dropped to Rs.5,908 trillion. The average volume decline to Rs.239 million shares. The foreigner remained the net seller worth $19.60m. The individuals turned out to be value buyers with $19.58m.
Pakistan stock market witnessed a freefall after the opening of Monday session. PSX has to trigger 4th market halt due to panic selling on investors’ concern over coronavirus spread. Stock market remained suspended for 45 minutes. The KSE-100 Index sustained a loss of 1,651 points at the time of market halt. Finally the market closed at 33,684.91 a loss of 2375.97.
A declining trend continued on Tuesday in PSX. PSX lost 10,667.98 points to close at 32,616.93.
Stocks continued to bleed on COVID-19 fears and on Wednesday recorded second worst-ever decline of 2,200.88 to close at 30,416.05. The PSX had its 5th market halt on 10.17 am to suspend trading for 45 minutes.
On Thursday stock market had its 6th market halt at 9.37 am when market witnessed KSE-100 Index dropped 1,562 points. Trading suspend for 45 points. Over all, the Index lost 1,964 points during the session reaching 28,452 points and rebounding to erase all the losses and reaching 100 points in green. Finally it closed at 30.129.83 shedding 286.22 points.
On Friday stocks surge by 537.58 points on value buying to close the Index at 30,667.41.
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Participants/Activity
On average shares of 353 companies were traded. Of these 82 were gainers and 250 were losers and 12 remained unchanged.
Foreigners were net seller $19.6m during the week; companies were buyer by $13.11m, Banks were buyer 11.96m; Mutual fund net seller 20.45m; Insurance buyer 23.81m and Individuals $19.58m.
Volume leaders during the week were: Maple Leaf Cement Co. Ltd 62m; Fauji Cements Co.30m; Hascol Petroleum 14m; Unity Foods 42m; Pioneer Cement Ltd 20m; Bank of Punjab 114m, K-Electric 70m.
Triggers
– Pakistan current account deficit shrank 71.04 percent to $2.843 billion during 8 months of this fiscal year compared to $9.817 billion in the corresponding period last year.
– Uptick rule for futures trading introduced by SECP from April 1. The uptick rule means that the shares of that relevant scrip have to be sold at price higher than the last trade and not lower than the last trade. The decision was taken in the wake of COVID-19 and its effect on local stock market.
– Moody’s Investor Service lowered its forecast for Pakistan growth rate at 2.5 percent for the current fiscal year owing to COVID -19.
– Pakistan’s textile and clothing exports jumped nearly 17 percent year-on-year in February.
– World share markets and oil prices struggled after coronavirus panic.
– Reserves held by SBP declined by $110 million to $12.68 billion during the week ended March 13.
– Capital requirements amended amid market meltdown. The stockbrokers have to deposit collateral under prescribed per cent of shares belonging to the clients to PSX, the valuation of these are conducted after 30 days and the SECP has relaxed the rules allowing the valuations after 60 days.
– Foreign investors have pulled out more than $1.388 billion from the country’s capital markets in the on-going month with hot money outflows amounting to $1.28 billion according to SBP on Thursday.
Conclusion
SBP has responded to COVID-19 challenge by introducing two refinance schemes.
Under the first scheme “Temporary Economic Refinance Facility” (TERF), SBP will refinance banks to provide financing at a maximum end-user rate of 7 percent for 10 years for setting up new industrial units. The total size of this scheme will be Rs.100 billion, with a maximum loan size of Rs. 5 billion.
The second facility named as “Refinancing Facility for combating COVID-19 or RFCC” will refinance bank to provide financing max-end-user rate of 3 percent to 5 years for the purchase of equipment to detect, treat and contain coronavirus. The SBP will provide this facility to banks at 0 percent and size of the scheme will be Rs5 billion with a maximum financing limit of Rs200 million.
Raees Uddin Khan,
Research & Development Institute of Securities Management Research& Training (Pvt) Ltd, Karachi.
Dated: March 21, 2020