KARACHI: Bears went on a rampage at the stock market on Monday where the KSE-100 Index spiralled downwards by 847 points (2.11 per cent) and settled below the psychological barrier of 40,000 points at 39,296.70. A massive sum of Rs142 billion was washed away from market capitalisation in a single day.

The rout saw the initiation of the fifth week of incessant fall that has already erased 4,500 points from 43,800 points that the benchmark had managed to reach in a bullish rally that began in August 2019.

While the nervous investors were fleeing the carnage to seek the shelter of safe havens gold and government papers, the pragmatists at the market were keeping their nerve and suggesting that a correction after the massive rally was not altogether unpredictable.

A massive sum of Rs142bn washed away from market capitalisation in single day

Brokers and traders said that macroeconomic concerns weighted heavily on the investors’ mind with the gruelling IMF second review taking place at the moment in Islamabad. The reports of upcoming mini-budget to raise a massive sum of Rs200bn and tide over shortfall in the revenue collection target cast a pall of gloom on the market as investors worried over the hit on corporate bottom lines and further hike in inflation.

Sulaiman Mehdi, chairman of the Pakistan Stock Exchange (PSX), said the market was reeling from the aftershocks of January figures of inflation that came higher than expected at 14.6pc. This gave a major jolt to the market as the investors’ hopes of interest rate cut by at least 25 basis points were watered down. Further evidence of high interest rates for the time being was provided by the surge in bond yields following the Pakistan Investment Bonds auction in which the three-year bond cut-off yield increased by 30bps to 12.05pc, the five-year bond yield was up by 21bps to 11.4pc and the 10-year bond yield rose by 10bps to 11pc.

Mr Mehdi observed that much of the sell-off early last week was triggered by the fear of deadly coronavirus that was driving away active foreign funds from global markets.

The PSX also witnessed major sell-off by foreign investors of stocks worth $14.2m. The rout at the market on Monday was also exacerbated by a market event which saw the revocation of suspension orders against brokerage house Azee Securities (Pvt) Limited. “It foiled the market’s attempt to recover in last trading hour as panic was triggered by the investors who worried over the possibility of distress selling by the [brokerage] house,” Mr Mehdi said, assuring that all risk management measures were in place.

The corporate results reporting season had still to unveil major results, which traders believed could change the market mood if the companies were to unveil healthy earnings and payouts.

The decision by the Financial Action Task Force (FATF) later this month on keeping Pakistan in the grey, black or white list also prompted investors to put plans of taking fresh positions on the hold.

Among local participants, mutual funds led the sellers on Monday, offloading stocks worth $5.20m. A mid-sized fund manager attributed it to shifting of investors’ money from equity to high-yielding bonds and possible run on redemptions.

Sectors contributing to the dismal market performance on Monday included oil and gas exploration & production, banks, fertiliser and cement. Scrip-wise, major drag on the index came from the OGDC, PSO, PPL, Mari Petroleum, POL, Engro Corp, Lucky Cement, DGKC, FCCL, SNGP and NBP.

Published in Dawn, February 11th, 2020