KARACHI, Jan 23: When the Karachi Stock Exchange index rose by as many as 100 points the previous Wednesday to close at 2950 points, many stock brokers were seen preparing for the feasts to celebrate the stocks crossing the coveted mark of 3000 points the next day. But as they say: “There is many a slip between the cup and the lip.”

In six straight sessions, since Thursday, the KSE index has plunged by 333 points or 11 per cent to end on Thursday at 2617 points—even lower than the much celebrated eight-year old previous highest mark of 2661 points of March 22, 1994.

The market capitalization has declined by Rs68 billion and the short term retail investors, who may have made late entry into the market, is sure to have spilled more than just the coffee. Some of the market watchers—who do not want to be named—smell something fishy.

Their lone voice alleging that a few major players had already sneaked out of the market at around the 2400 levels is, nonetheless, drowned in the arguments of most other analysts who contend that what is happening is just a ‘correction’ and that long-term investors and institutions are waiting in the wings to re-enter as the index stabilises.

Many analysts agree that the current sell-off at the market is the outcome of panic-selling by weak holders. “First they overstretched themselves by excessively leveraging their positions and then, they off-loaded their positions without realising the underlying fundamentals of the stocks,” says Arshad Arif, head of research at KASB & Co.

The day before the fall began, the COT investment in stocks had topped Rs14 billion with the rates on Friday at 47 per cent (touching the upper limit of 50 per cent). Besides the geo- political situation, Khalid Iqbal Siddiqui analyst at InvestCapital attributes the heavy drop in stock values to the high badla rates and leveraged buying by weak holders. “However, the recent downslide in the KSE-100 index has served to reduce weak holding; the weighted average badla rate at KSE had declined to 24.9 per cent and badla financing to Rs11.6 billion this Wednesday,” analyst noted.

Wajahat Ali, head of research at Taurus Securities also attributed the downslide to panic-selling by weak holders, saying that such high COT financing could only be sustained in a growing market. He said that a “correction” in index was over-due after the long run growth of the market in December.

Excepting the Hubco’s delayed dividend, there was no significant news that might negatively impact the market. Hubco stock had meanwhile lost about Rs6.65 or 16 per cent to close on Thursday at Rs35.40 since it came up with its first disturbing announcement last Friday that the accounts for half year to end- December was on the agenda for the board meeting next month and not the interim dividend; the dividend, the company said, could come under consideration in the Board meeting in March/April.

Market fundamentals, otherwise, were still strong. A string of full year financial results from Fauji Fertilizer; Engro Chemical; Unilever were due and so were the half term results from Shell. PSO had, on Thursday, announced a record after-tax profit of Rs2.06 billion and cash dividend of 60 per cent for the half year ended December 31, 2002.

Iffat Zehra Mankani, analyst at IP Securities, said that the market was in a double trouble situation, where the cost of carrying positions had become too high because of the presence of absolute weak holdings coupled with the fact that many of the stocks had become fundamentally overvalued. The analyst expects the KSE to move towards strength, once the gains derived from speculators and weak holders in the market subsides because of this technical breather.

But how about the retail investors who may have been under the tables when they got turned? Analysts say that short-term investors may have dabbled in shares, attracted by the charm of higher yields. “However, there is a calculative risk factor in equities that comes into play sooner or later for all types of investors, hence, when the market was escalating, as an immediate effect a fall of similar extent ought to have been anticipated,” argues Ms. Mankani.