KARACHI: Leveraged buyers led a selling spree at the Pakistan Stock Excha­nge on Tuesday, resulting in the biggest day-on-day decline in the benchmark of major shares.

The KSE-100 index dropped 2,534 points or 4.1 per cent from the preceding session to 59,170.97 points, down 11pc from an all-time high of 66,427 points on Dec 12.

Speaking to Dawn, Topline Securities Ltd CEO Mohammed Sohail said high leverage was the key reason for the sharp drop in share prices on Tuesday.

“Greedy investors descend upon the market every time stock prices go up too quickly,” he said while referring to leveraged traders who use borrowed funds to buy shares. They liquidate their positions in large numbers once the market enters a correction — signalled by a drop of 5-20pc in average share prices — as they’re required to deposit additional cash with their brokers to cover possible losses.

Index down 11pc from its peak on Dec 12

The total leverage position in the exchange climbed down 8.2pc from last Friday to Rs32.7 billion at the end of Tuesday’s session.

Citing data from the morning of Tuesday, Mr Sohail said futures contracts for December amou­nted to more than Rs20bn.

Futures contracts allow investors to trade eligible underlying shares with the actual delivery of the same securities occurring at the expiry of the contract, which is the end of every month.

Therefore, investors holding December contracts have until the end of this week, which coincides with the end of December, to either settle their positions or roll them over to the next month.

“I see a rebound in the index later this week, even though investors still have three days in which they can settle their December contracts,” he said.

According to Arif Habib Ltd, the KSE-100 index going below the 60,000-point level is “significant”. “We are now on alert to watch for signs of bottoming and the resumption of upside,” it said in its market commentary.

The drawdown for the KSE-100 index has now extended beyond 10pc, which is historically the turning point in bull markets, it said while showing optimism about the end of the index’s correction

of more than 7,000 points during the last couple of weeks.

Trade data showed individuals as a category of investors were the biggest sellers as they disposed of equities worth $5.9 million. Other major sellers were mutual funds ($3m) and companies ($1.1m).

The categories of investors who bought up shares in large quantities were banks ($4.5m), brokers ($2.9m) and insurance firms ($1m). Foreign investors remained net buyers as they purchased shares worth over $1m. However, nearly all of that inflow originated from overseas Pakistanis as foreign corporates made a net purchase of only $0.03m.

The overall trading volume remained flat on a day-on-day basis at 670.8m shares. The traded value increased 25pc to Rs17.1bn on a day-on-day basis.

Stocks contributing significantly to the traded volume included K-Electric Ltd (97.3m shares), WorldCall Telecom Ltd (72.5m shares), the Bank of Punjab Ltd (41m shares), Cynergyico PK Ltd (39.8m shares) and Fauji Foods Ltd (37.9m shares).

Companies registering the biggest decreases in their share prices in absolute terms were Unilever Pakistan Foods Ltd (Rs355), Nestle Pakistan Ltd (Rs106), Mari Petrol­eum Company Ltd (Rs94.63), Pakistan Services Ltd (Rs78) and Lucky Core Industries Ltd (Rs38).

Published in Dawn, December 27th, 2023