PSX searching for certainty

Having witnessed a record single day dip in terms of points and multi month high in terms of percentage, the KSE-100 index did well to arrest the slide the very next day of the JIT report. But the volatility remains high, ever since the Panama verdict on April 20. The intraday index movement ever since the Panama verdict has averaged 955 index points – more than double the one year average leading to April 20.

How low could it go is anyone’s guess but market pundits anticipate the bottom is not too far off. Reasons are aplenty, as the valuations now trade at a multiple of 8.5 times, which is pretty attractive even by Pakistan standards. Granted that the multiples in the past have gone down to as low as 7.5 times, but those were times of high interest rates.

Market sources say that the heavy selling on July 11 was backed by the government, as it forced some institutions to sell heavy. The idea was to show how important it is for the current setup to remain for economic stability. This may or may not be true, but most market players agree that the market will head north once the JIT smoke clears up.

Even in the (now very likely) case of Prime Minister being shown the door, the stock market might take a bullish turn. The market pulse suggests that in either definitive case, of the PM being cleared or being ousted, the market should gain momentum. Should the case linger on, which remains another likely scenario; expect the market to remain range bound and highly volatile, as it is today. So, if the market pulse is anything to go by, it is not in the love of the PM, that the market tanked, it is the uncertainty that played its part. Once that goes away, expect the market to bounce back.

It helps that most mutual funds are sitting on huge cash piles, and they cannot drop below a certain level, to which they are already approaching. Volumes will be back in a rising market, so if they are to make big purchases, it may well be on higher rates.

All said the panic value of PM’s possible ouster still carries a potential of another 4000-5000 points downside. The high intraday volatility has already left small individual investors on the sidelines, and there remain the big guns to decide where it goes. Till next Monday, the index should move in a narrow band with high volatility.