SHARE values last week again finished sharply lower as the KSE 100-share index took another massive plunge at the weekend session followed by reports of margin calls on some of the brokers owing to a galore of fresh lower locks on most of the blue chip counters.

The market is the victim of both selling and support from any quarter and until the consolidation forces come to the aid of a terribly weak market, the erosion in values could intensify in the coming sessions, analysts fear.

The failure of strong mid-week rally to extend itself as cap on margins of oil marketing companies and 2.5 per cent cut in deemed duty on refineries to 7.5 per cent from 10 per cent again triggered a lot of selling and reversed the fresh potential rallies.

The KSE 100-share index was quoted lower by 860.78 points at 10,171.39 as compared to 11,032.17 a week earlier as most of the base shares suffered fresh fall.

The market seems to be well on the road to a sustained recovery after uncertainty about the new monetary policy has been removed, and maintained around the previous guidelines with the exception of a modest hike of one per cent in the discount rate to 13 per cent from the previous 12 per cent.

The investors’ initial reaction to the policy was positive on the perception that 100 basis point increase in the interest rate was in line with the market thinking and may not have any adverse impact on share trading.

Indications were that the market would maintain its recovery tempo on strong support during the coming weeks also as a highly oversold market warranted a lot of covering purchases both for capital gains and long-term investment at the attractively lower levels.

But the rally faltered half way on snap selling from all quarters after the cap on oil companies margins and cut in deemed duty followed by active unloading in the oil shares and others.

Analyst Faisal A. Rajabali said a spate of negative news, mainly rumours of margin calls on some leading brokerage houses, talk of lowering of Pakistan credit rating and persistent foreign selling indicate that the market could run into a deeper recession when the trading resumes next week.

“All eyes are now cast on the possible intervention of the newly set up Rs25 billion equity market support fund whether or not it plays its role as a market rescuer”, he added.

Investors were also worried over the situation in the tribal areas and missile attacks from across the border causing human casualties.

News from the political front was also not encouraging, which promoted capital flight from the country, and foreign investors’ liquidation of their holdings in the share market.

Announcements of dividend and bonus shares by some leading companies, such as the Fauji Fertiliser, Dawood Hercules, Arif Habib Securities and the International Industries were on the higher side of the analysts’ predictions, but other negative factors neutralised their impact, floor brokers said.

The mid-week smart rally later faltered as investors took profits on the oil and banking sectors, what analysts called, a spontaneous negative reaction to cap on the margins of oil companies as was reflected by sharp fall in the share values of PSO and Shell Pakistan.

The lead apparently for early recovery came from the institutional traders under the lead of equity market fund and others who are closely monitoring the market trend rode the bandwagon causing a snap rally despite the fact the background news on political front was not encouraging at all.

The question now being asked is whether the market will follow its own technical demands or play to the tune of political developments and news from FATA where “do more” policy is still relevant, some analysts said adding one should not jump into hasty conclusions at this stage as the snap rally could be deceptive.

“The talk of a tight monetary policy to tame the monster of inflation, trade and budget deficits has eroded share values by 5.34 per cent wiping out Rs175 billion from the market capital on panic selling amid fears of hike in discount rate above one per cent”, analyst Hasnain Asghar Ali said.

The market needed an excuse to respond to its technical demands and that came in the form of below market expectations hike in the interest rate, he added.

He said one per cent increase in the rate is in line with analysts’ perceptions and well adjustable in a highly oversold market viewed in the backdrop of CFS and CFS MK-2 prevailing interest rates on the forward counter.

“The market has been in a highly oversold position owing to a protracted bearish spell weighed down by negative news and needed correction, which came in the form of a short-covering”, analyst Ahsan Mehanti said.

Forward counter: Leading shares on the cleared list also fell in unison on active selling and mostly finished lower under the lead of OGDC, Pakistan Oilfields, Pakistan Petroleum, Shell Pakistan, PSO, National and Attock Refineries, MCB, National Bank and Engro Chemical.—Muhammad Aslam