Margin calls trigger bloodbath at PSX ahead of polls

KARACHI: Stocks slumped to a two-week low on Tuesday, wiping out most of the gains from a recent rally, as investors worried about the political uncertainty ahead of the general elections and faced margin calls amid rising financing costs, dealers said.

The Pakistan Stock Exchange (PSX) benchmark KSE-100 Index plunged 3.64 per cent or 2,371.64 points to 62,833.03 at the close, the lowest level since October 25. The index hit an intraday low of 62,360.78, the worst performance since March 16, 2020, when it dropped 2,375 points. The KSE-30 index also fell by 708.52 points or 3.26 per cent to close at 21,002.23 points.

Dealers said investors were forced to sell their over-bought and highly-leveraged positions as they faced margin calls and felt nervous about the upcoming polls scheduled for February 8, 2024. Financing rates are also usually higher due to year end, which adds to the pressure on the leveraged investors, they added.

All the major sectors traded in the red, with automobile assemblers, cement, chemical, commercial banks, oil and gas exploration companies, oil marketing companies, pharmaceuticals and refinery bearing the brunt of the selling pressure.

Analyst Ali Najib at the Topline Securities said equities commenced the day by resuming Monday’s bearish momentum “but suddenly the negative trend converted into a bloodbath as selling headwinds took bullish momentum by the horns”. “At one point in time, the index saw an intraday low at 62,361 level (-2,844 points; 4.36 per cent) by breaking each and every support level in between 65,000, 64,000 and 63,000 points levels. Nevertheless, the benchmark index called the day at the 62,833 level after post slight recovery, courtesy brave value hunters,” Najib added. “The aforesaid madness can be attributed to institutional profit-taking ahead of the calendar year end and very little to muted activity from the foreigner’s front due to the commencement of the annual holiday season,” he said. “Furthermore, market vibes are also suggesting some aggressive trimming from leverage investors too as next week is a rollover week for future contracts.”

Ahsan Mehanti, an analyst at the Arif Habib Corp, said the record fall witnessed at PSX on pre-election uncertainty and concerns over falling foreign inflows through foreign loans dropping by 50 per cent to $416 per cent in Nov 2023. “Investor concerns for weak earnings outlook for leveraged stocks amid high inflation and high leverage at the PSX played a catalystic role in the bearish close.”

Traded shares decreased by 377 million shares to 1.513 billion shares from 1.890 billion shares. The trading value increased to Rs 29.099 billion from Rs 24.595 billion. The market capital dropped to Rs 9.093 trillion against Rs 9.455 trillion. Out of 386 companies active in the session, 31 closed in green, 351 in red and four remained unchanged. Resultantly, banks, E&P, fertilizer, technology and OMC sectors received considerable selling where MCB, OGDC, DAWH, SYS and PPL negatively contributed 557 points to the index. On the other hand, PSEL, MEBL & RMPL saw some buying interest as they added 40 points, cumulatively. The highest increase was recorded in Rafhan Maize Products Company Limited, which rose by Rs 150 to Rs 9,900 per share, followed by Pakistan Services Limited, which increased by Rs 44.63 to Rs1,124.63 per share. A significant decline was noted in Unilever Pakistan Foods Limited, which fell by Rs 725 to Rs 21,550 per share, followed by Nestle Pakistan Limited, which closed lower by Rs 400 to Rs 8,100 per share.

Arif Habib Ltd, a brokerage house, said a sharp decline hit the market as the index tumbled by 3.64 per cent, extending the drawdown from the peak to -7 per cent. “Near-term support at 64,000 gave way, leading to the liquidation of leverage traders.” K-Electric Ltd remained the volume leader with 341.067 million shares which closed lower by 53 paisas to Rs 5.30 per share. WorldCall Telecom followed it with 176.027 million shares, which closed lower by 20 paisas to Rs 1.70 per share. Other significant turnover stocks included Cnergyico PK, B.O. Punjab, PTCL, Pak Int. Bulk, Fauji Foods Ltd, Hascol Petrol, Pak Elektron and Kohinoor Spining.

A total of 315 companies recorded future shares, of which eight increased, 304 decreased and 3 remained unchanged.