Monday, 21 March 2011 11:57
Talk about disappointment. Just when the bulls at Karachi’s equity market were expected to make further inroads by regaining their grounds, they seem to have drained out of energy.
KSE-100’s movement last week also smacked the theory that all good news is boon for the market.
Why else would the market pay no heed to the improvement in the large scale manufacturing index that turned positive after several months? Why would it also ignore the continuous improvement in the current account balance despite a nearly 8 percent month-on-month hike in average global oil prices in February?
Similarly, why should the fiscal measures ordered by the president fail to stimulate the market? Even the onset of margin trading – which is marked by the so-called ‘bullish bias’ -- failed to spark an upward rally.
Quite noticeably, the answer is in KSE’s asymmetrical relationship with foreign investors. Ever since the FIPI inflows started tapering off, the KSE-100 has been getting rather weak (See graph).
According to NCCPL data, foreign investors sold over $16 million of equities last week – taking the total month-to-date outflow to $21 million. This trend is likely to continue in the wake of regional sell-off triggered by the quake in Japan and growing conflicts in the Middle East.
This means that March might turn out to be the first month since May 2009 to witness a net FIPI outflow. And in turn, this implies that KSE-100 can be expected to extend its losses in the remaining days of the month.
The mood of the floor, however, is uncertain. “For the time being I am viewless,” said one mutual fund manager on the condition of anonymity. “I think the market will remain neutral, however, consolidation is more likely to have a downward bias,” said a technical analyst of a leading brokerage.
And these views are being clearly reflected at the bourse. The momentum is waning -- with the KSE-100 turnover dropping to an average 67 million in the last two weeks, compared to an average of 96 million the fortnight before.
At the same time, volatility has been increasing. Average difference between intraday high and low has increased to 201 points since February, from an average of 146 points in two months before.
Both these factors suggest that a dynamic shift is on the cards. The onset of margin trading that can potentially increase the participation of domestic players also points to the same.
But with most stock prices near their respective fair values, room for further increase is limited. And hence, the negative reaction at KSE these days