WHAT happened at the Karachi Stock Exchange on March 16 when its 100 share index took a sudden nosedive from its giddy 10,303 points peak was not a crash but the sudden melting down of too tall an icicle that could not stand up any longer, much less soar further. The air had gone out of the balloon at the giddy height and those in the basket came tumbling down a long way until saved partially by emergency rescue operations by banks and other financial institutions.

When the manipulated share prices shot up, exceeding all previous peaks, the lead players of the KSE were talking of exceeding 10,000 points and then 12,000 points, but the prudent had to watch out. While some did, many did not, lured by the reward of shooting prices but after the index crossed 10,000 points on March 15, came the sudden tumble.

While describing the KSE as one of the best stock exchanges in the world, if not the best, both for its rising prices and the volume of turn-over of the shares, the lead players of the stock exchange wanted the KSE index to be on par with the New York Stock Exchange, and once the 10,000 points were touched they spoke of the KSE index exceeding the Tokyo index at over 12,000. They had thrown all caution to the winds in their passion for ceaseless speculation or quick money making the easy way.

For all that the last week at the Karachi Stock Exchange before it tumbled down was 2661 in March 1994. Then again the privatized shares were in the lead like the PTCL, Sui Northern, and the PIA.

The KSE leaders could have also looked at the Bombay Exchange next door. Even in good times in the KSE, the Bombay Ex-change’s SENSEX of 30 shares used to be 1,000 points ahead of the KSE index. And when the KSE Index was hitting its peak, the Bombay index was around 6,500—3,500 points less. It is now 6367 points. It was said the Bombay index has risen to 6,500 points because of enhanced foreign buying of the shares. In Pakistan interest of foreign buyers had just begun and the collapse came, although the two developments are unrelated.

A number of post mortem operations are to be undertaken by government agencies at various levels and the members of the National Assembly. The Securities and Exchange Commission (SECP) which is most directly concerned with the corporate sector, would undertake a detailed study, and be answerable to too many agencies in the country.

The KSE led by Moin Fudda, managing director, would undertake its own study. Mr Fudda told Prime minister Shaukat Aziz he was not allowed by the KSE members to prevail in preventing the crisis or avoiding the crash.

The Public Accounts Committee of the National Assembly led by Malik Allah Yar Khan wants to conduct a deep probe into the crash.

And the Prime Minister, who heard the views of the leaders of the stock exchange and its financiers, has also ordered an inquiry. But he would rely more on the SECP.

The officials of the stock exchange will have a busy time for several weeks running from pillar to post explaining how it all happened, who the principal culprits, who are gainers and why the crash could not be prevented well in time.

The first thing to probe is how the index was allowed or manipulated to reach 10,000, and who at all gained by that and how? Once the leaning tower was erected it had to fall sooner or later. Any rational stock broker knew that a 10,000 point index was a not a tenable index and its collapse will make many suffer. Hence the builders of this financial tower of Piza should be identified and made to compensate, at least partly, some of those small investors who lost heavily, though foolishly or greedily.

The probe bodies will find that too many institutions and groups of persons were responsible for the crash. First comes the government which kept holding up the KSE index as an index of the success of the official economic policy or its trophy. Lately, the government had not been doing that but once the government began treating the KSE index as a badge of success, the officials did not want to come up with cautionary notes, much less ring the alarm bells.

The other guilty party are the lead players in the KSE who spoke of the sky as the limit for the index in the KSE to rise. They said that even after the crash.

The SECP should have certainly done a better job and be looking more closely at the gathering storm and tried to diffuse it. That is its primarily responsibility. But since the government was too ecstatic over what has been happening in KSE its chairman Dr Tariq Hasan did not cut across its gleeful path.

In the US, before the stock market crash came by the end of 1990s, the chairman of the Federal Reserve kept on talking of the irrational expectations of the people buying shares at giddy prices. Other persons cynically smiled at his comments, but he kept repeating it, more like an oracle. And when the crash came he was proved right and his mockers wrong.

But we did not have any top official warning us. And the share prices shot up within a short time. In that analysts had little place. Finally the events took their own negative course.

How prudent is it to push up PTCL prices steadily when it is to be privatized soon by selling the controlling shares? Competition to the PTC has increased enormously. And it will lose its tax exemption as a private entity, and it is forced to reduce its rates under the pressure of the competition.

Those who bought PTCL shares at 55 abroad and Rs30 at home lost heavily as the share price plummeted at Rs16. Foreigners sold after waiting for long for the price level to improve. The Pakistanis held out and it has taken years for them to get a fair dividend.

Those who had bought Sui Northern at Rs40 share, after the shares issued had been multiplied many times, were heavy losers for a long while. The principal victim was the Muslim Commercial Bank which underwrote the shares and bought many of them.

The Privatization Commission learnt a lesson by that and has done much better this time. And those who were lucky enough to get the shares of the privatized companies in its new round profited a great deal. And those disappointed by not getting any of the shares were too many.

The KSE index comprises 100 shares, but in fact a few shares, particularly in the energy sector, dominate the index. They were the OGDC, PSO and PTCL. And now PPL is to be added to the list to reduce the weightage of OGDC. These three shares have a weight of 50 per cent in the index.

Bombay’s SENSEX has 30 shares, but the KSE index in effect had only three shares.

It was not all investing that was taking place at the KSE. A great deal of that was speculation or gambling fuelled by greed, using borrowed money. In recent times, the Badla funds used to finance the trading was as high as Rs38 billion and at their peak those rose of Rs 72 billion, even Rs100 billion it is stated now.

Will the margin financing which is to replace Badla, give better results? Or will that be resisted by the greed-fuelled speculation or gambling for high stakes? The interest rate for Badla was 18 per cent.

During the crisis period it went up to 24 per cent and the State Bank then lifted the ceiling on the interest rate on Badla so that more bank funds could be available to the buyers of share shares or rescuers of the Exchange.

Will the demutualization of the exchanges in Pakistan eliminate many of the abuses in the system? Will that reduce the risk elements which Mr Moin Fudda seeks to ensure despite resistance from the members of the KSE.

The acute crisis on the KSE has been averted with the NIT-lad consortium of banks buying off a number of shares at lowered prices?

On Tuesday the KSE index went up by 146.85 points to reach 7865 points and on Wednesday it increased by 230.40 points to touch 8085.56 points, and the volume of sales rose to 447 million.

But the massive jugglery of figures or exaggeration should come to a stop. Instead of the OGDC, or PPL shares actually sold and available in the market, their whole capital is shown as listed capital with the exchange. So instead of the aggregate capital of the shares quoted being mentioned at $4.6 billion it is being stated as $36.3 billion which is the capital of all the companies listed on the exchange while most of that is not afloat in the market.

Such wild and unrealistic exaggeration should give way to the factual position of the number of shares afloat in the market and open for sale and purchase.