The spectacular rise in the prices of certain shares from March 25, 2020 to date has left investors gasping for breath.

The invasion of Covid-19 dented the KSE-100 index, which reached its nadir of 27,229 points on March 25 last year. From there onwards, the index displayed an upward spiral that over the last 10 months has gradually reached 45,984 points. This represents a 31-month high and a massive recovery of 69 per cent.

During the same period, price gains in certain stocks have been mind-blowing: two stocks in the technology sector have left analysts scratching their heads. TRG Ltd was languishing at Rs12.87 on March 25. It is now trading at Rs109.50, up 751pc in 10 months.

Netsol Technologies that no one was picking up at Rs27.16 is now doing brisk business at the price of Rs188.05, up 592pc.

Who will end up holding the dirty end of the stick this time around? The same small shareholder with small means who has returned to the market yet again dreaming of making a fortune

Even though wise men at the market argued that the technology sector would swim against the tide and grow amid the pandemic, the phenomenal outperformance by TRG and Netsol has left marketmen floundering to find a proper reason.

Neither of two companies has a balance sheet as strong as a rock. Nor have they showered wealth on their shareholders in enviable dividends. Is it then just hot air that has created the bubble? No one can say how many of such bubbles are forming and floating in the market. But what is certain is that it can lead to a catastrophe.

When the Securities and Exchange Commission of Pakistan (SECP) was asked about abnormal price rises and whether the regulator believed price bubbles were forming and how it intended to deal with them, a spokesperson for the apex regulator said: “The share price of a listed company may change due to multiple factors. The SECP and the Pakistan Stock Exchange (PSX) have dedicated mechanisms and systems to monitor trading activity with the help of specialised tools and any wrongdoing detected has to be processed as per relevant provisions of the law.”

The SECP representative went on to affirm: “Any sudden increase in the prices of stocks is duly noticed and stocks with unusual price or volume fluctuations are examined for identification of any market abuse.”

The PSX on Thursday handed out notices to around a dozen companies asking them to explain the reasons for the “unusual movement” in their stock prices or to state if they are not aware of any matter or development that could have caused the prices to spike.

Mostly third- and second-tier companies, such notices have been served to Aisha Steel, Rupali Polyester, Punjab Oil Mills, Saritow Spinning Mills, Rupali Polyester, First Prudential Modaraba, Nimir Resins, Pakistan Engineering, Netsol Technologies, Khurshid Spinning Mills, Ideal Spinning Mills, Hira Textile Mills, Data Agro, Cyan Ltd, Crescent Textile Mills and Abdullah Shah Ghazi Sugar Mills.

The notices require explanation for abnormal price movements in the “last two months”. These are not the only entities that have been asked this question. Several others like Bunnys Ltd, K-Electric, Shadman Cotton Mills, Sardar Chemical Industries, National Refinery and AKD Capital were earlier confronted by the Securities Division of the apex regulator on their unusual price movements.

Netsol Technologies responded the same day: “We are not aware of any reason/material information which may have resulted in the unusual movement in price or volume…”

SS Oil Mills and Nimir Resins also sent their replies: “We are not aware of any such matter/material information which may have resulted in the movement in the market price and volume of the company.”

Crescent Textile Mills, Cyan Ltd, Khurshid Spinning Mills, Bunnys Ltd and K-Electric responded in about the same words. Shadman Cotton Mills said: “We have no formal means of knowing what speculation is circulating in the market.”

But all companies affirmed: “We are fully cognisant of the applicable regulatory framework and would continue to ensure compliance with it.”

Sardar Chemical Industries was more helpful. It said: “We reckon that the extraordinary inflow of capital into the stocks could be due to the restriction on the participation of institutional investments in National Saving Schemes from July 1, 2020, which is worth billions of rupees.”

AKD Capital in response to the letter of the SECP seeking clarification in respect of the substantial increase in the share price over a short period of time observed that it had increased after a notice dated Dec 21, 2020 was published stipulating that the board had updated/amended the memorandum of association of the company, which was followed by a notice of material information on Dec 29, 2020 by the company about the board of directors’ resolution to update/amend the memorandum of association and increase its authorised capital.

AKD Capital affirmed that it had complied with all disclosure obligations required by the law and conveyed all price sensitive information, which may have caused such fluctuation in the share price of the company.

But the question remains: who benefits from unusual price movements? Some conspiracy theorists blame certain market players who might be making big money from both ways. Buying and taking the stock prices to their peak in the ready market and selling short in forward contracts, thus raking in wealth by juggling the price between ready and future markets.

If the bubble bursts, who will end up holding the dirty end of the stick? The same small shareholder with small means who, despite having burnt his finger in previous market crisis, has returned yet again dreaming of making a fortune this time around. But mind you, such are the thoughts of some veterans at the market. The writer desists from finger-pointing: “So are they all, all honourable men.”

A little while ago, in an article on these pages, this writer pointed to a wrongdoing by a “big market player” that one big brother thought alluded to him. He promptly sent a notice through a frighteningly powerful lawyer, claiming compensation for the hurt to his honour. The compensation claim was for a measly sum of Rs500 million.

Published in Dawn, The Business and Finance Weekly, January 25th, 2021