KSE plunges as panic selling sparks margin call frenzy

KARACHI: The Karachi stock market suffered its biggest losses in seven months on Monday in a pandemonium of panic selling that triggered a chain of margin calls and forced a broad sell-off, dealers said.
Shuja Rizvi of Al-Hoqani Securities and Investment Corp said redemptions by mutual funds triggered margin calls on the broader market and wrecked bargain-hunting attempts by investors.
“It’s like terror... investors didn’t pick up battered shares as they expect more falls to come, so better to pull money out and wait for sentiment to level out,’’ Rizvi added.
The benchmark KSE-100 shares index shed 1,030.79 points or 3.44 percent to close at 28,927.04 points. KSE-30 shares index lost 697.60 points or 3.66 percent to end at 18,371.59 points.
As many as 382 scrips were active of which 24 advanced, 350 declined and 08 remained unchanged. The ready market turnover improved to 275.372 million shares as compared with 213.027 million shares in the last trading session.
Analysts said the market started the week with benchmark index witnessing largest fall of the year as investors opted for large-scale selling to meet margin calls.
Mohammad Sohail, CEO of Topline Securities, said the bearish trend was largely due to various rumors circulating in the market. “The market has been abuzz with speculation about leveraged investors selling stocks to meet margin calls” Sohail said.
Traders said the plunge was not due to fundamental economic concerns or political tensions related to the metropolis. Instead, the market was vulnerable to heavy selling after retail buyers sent it soaring earlier this year, they claimed.
Monday’s drop extended the stock’s loss this month to 17 percent while Rs1.39trillion has been eroded from market capitalization.
“The retail investors have booked most of the losses today… as they had to go to other shares and sell,” Rizvi of of Al-Hoqani Securities said. “It was reactive selling and in our business reactive selling is disastrous, because stocks move at prices which may have nothing to do with their fundamentals.”
Despite a whole list of positives on many fronts including Chinese President’s visit in early April, arrival of LNG imports, expected lowest monthly inflation, IMF confirming loan installment and reports of progress on state pension fund’s injection in equities to the tune of $50 million, there was no respite for investors as benchmark tumbled to levels last seen in September 2014.
Samar Iqbal at Topline Securities said based on multiple rumors, index posted one of the largest fall of 1031 points or 3.5 percent to close at 7-month low.
“Speculation of clients’ margin selling, unsettled futures settlement and local funds’ redemptions caused panic like situation at local bourse where most of the stocks closed at 5.0 percent lower limit.”
Dealers said recovery in global markets also failed to provide any support to local equities where foreigners remained net sellers of $131 million in last three months.
Faisal Bilwani at Elixir Securities said outstanding issues between broking community and regulator have reportedly seriously dented trading capacity “while rumor mill is not helping sentiment.”
Pakistan Oilfields Limited (POL) announced discovery in MOL Pakistan operated TAL Block, but the development could not invite any interest in the sector.
Highest volumes were witnessed in K-Electric with a turnover of 46.169 million shares. The scrip shed 65 paisas to close at Rs6.11. It was followed by Bank of Punjab (BoP) with a turnover of 27.031 million shares. It lost 76 paisas to end at Rs7.05. Fauji Cement was the third with a turnover of 11.264 million shares. It shed Rs1.42 to finish at Rs27.12 per share.