Equity market mostly remained under pressure during the week (rollover week) of stock futures and equities lost their value as desperate selling in the July futures was witnessed.
Even the announcement of healthy corporate results could not support the market, which declined by 2.4 percent during the week and the index touched its 8-week low of 7179 points. Market capitalisation was recorded at Rs 2.0 trillion or $34.3 billion levels, eroding by Rs 13.5 billion over the week.
The ready market was confronted by low volume throughout the week, touching 15-week low on Monday. The average daily ready market volume was recorded at 112 million shares on the weekend.
Fiza Naz, research analyst from Jahangir Siddiqui Capital Markets Ltd, said that transition from July to August contracts was in line with historical trend. It was observed that in the last two-three months around 70-80 percent of open interest was transferred to new futures.
This time also 70 percent of July's open interest was transferred to August futures during the week.
One other measure to evaluate how smooth the transition was from one future to the other was to see at the average annual spread between ready and futures. Last week, average annualised cost of carryover was 14.8 percent lower than 17.7 percent seen in the rollover week in June. Moreover, this time, badla was capped, unlike June futures, when the investors had to reduce their badla position along with their futures open position. Thus, the transfer from July to August was relatively less painful.
Another development during the week was that broker-wise futures open position uploaded on the KSE website. Now, the investors can see scrip-wise broker exposure in the market. However, the position does not tell the 'buy' or 'sell' open position.
On Friday, Rs 11.2 billion was outstanding in the stock futures market. Out of this, PPL, PTCL and OGDC constituted 54 percent of the total open position. In each of these key scrips it was observed that the top broker in each category had more than 10 percent exposure.
She said that during the week FABL, Engro, FFC, PSO, and Azgard-9 results for the periods ended June 30, 2005 were announced. These companies posted significant earnings growth and announced healthy payouts. But due to weak market sentiment and stumpy volumes the results could not trigger positive rally in the market.
Faysal Bank recorded an increase of 68 percent in its net earnings, paying 15 percent cash dividend and 15 percent bonus, while Engro Chemicals profit rose 50 percent, pay-out 30 percent. Fauji Fertiliser profit was up 21 percent, paying 40 percent cash and 15 percent bonus; Pakistan State Oil profit 35 percent and 100 percent cash dividend; while Azgard-9 profit posted a net rise of 58 percent.
The market participants were still in doldrums due to non-existence of adequate financing to fuel the market rollercoaster. The regulators still seemed tentative about the agreeable mode of financing for the local bourses as the weekend meeting concluded without making any headway to rescue the market from troubled waters. However, the 14-member committee came to the conclusion that the market required around Rs 30 billion funding and, for the time being, margin financing was not able to meet this requirement and there was a dire need some other mode of financing for the market to bridge this gap. The committee further concluded that the new financing mode would be worked out in a week's time and hence the market was likely to portray the same picture in the next week as it did last week.
Badla, margin financing and related matters should continue to be the order of the day, going forward. There have been talks regarding raising the cap on badla financing and eliminating the double margins on margin financing. The market, however, did not exhibit much excitement in response, and the state of confusion persisted. The new week mood should be much the same with market participants trying to figure out the future of badla and financing mechanism of the market!