Is KSE-100 digging its own grave?

For those involved in the stock investing business at local bourses, its time to take stock of the situation.
Shocked by the unexpected rate hike by the central bank on Friday, market participants would likely push the benchmark index Karachi Stock Exchange lower in todays first panic trades; even if they didn , its a no-brainer to figure that stock prices will eventually take a hit by the end of days trade.
So the question is not whether stock prices would fall or not; the question is how far would they go down? And whether that downhill journey will continue until a foreseeable future, taking prices down to multi-month lows, or whether the rate-hike-led KSE slide would just be a so-called healthy-correction?
Ordinarily, the State Banks policy stance would have provided a clue.
Stripped of its often complex set of economic jargons, the central banks message essentially meant, the road to stabilisation is bumpy, the tires are weary, the engines need to be overhauled, and there are stormy clouds ahead.
In suggesting so, the SBP cautioned of higher-than-projected inflation and high fiscal borrowing amongst other structural changes that ought to be brought about to put Pakistan back on the path of stabilisation.
This means that after some hesitation, KSE-100 would eventually break 10250 sometime this week, and gradually move towards its 200 daily moving average of 9750~ points. From that point onwards, a gradual step by step movement back to its familiar grazing grounds of 8800~9300 points doesn seem to be an outstretched imagination.
But given the over confidence of foreign investors in KSE equities, don be too surprised if KSE-100s immediate-term correction creates a room to volley towards 10700~11000 points over the course of the next few weeks.
If and when it does that, the important thing to remember will be that he higher you go, the farther you fall, the longer the walk, the further the crawl.
Apparently this maxim seems to be well understood by local players - most of whom have been selling profusely in the last many months, despite all the talks of attractive price levels from the sell-side as well as from some buy-side analysts.
In short, KSEs obsession with 11000-plus points is akin to digging your own grave. And the sooner foreign investors realise that any fresh rally up north would be one born out of frustration, the better it is for gradual rationalisation of equity prices. Clearly, the market isn ready to deal with another crash-like adjustment.

===============================================================

WHOS BUYING AND WHOS NOT

===============================================================

Summary of portfolio investment classified by local players*

===============================================================

                                   Corporates,           NBFCs,

$ (mn)         Total   Individual    Banks/DFIs    AMCs, others

===============================================================

Apr-10         (61.6)      (31.5)      (12.6)            (17.5)

May-10         (22.2)        4.1       (23.9)             (2.4)

Jun-10         (23.2)       (9.5)      (16.4)               2.6

Jul-10         (49.9)        1.3       (22.4)            (28.7)

---------------------------------------------------------------

* regular market only, does not include off-market transactions

===============================================================