Pakistan Stock Exchange is taking strides in growth and has recorded a trading volume of one billion shares for the first time in 16 years. The growth was achieved primarily by contributions made by a handful of penny stocks. It looks quite out of ordinary that in the midst of economic downturn owing to the pandemic the stock trade is seen registering an unprecedented growth. The most significant aspect is that the growth recorded so far has been concentrated mainly in few stocks and that is usually not considered long-lasting.
The boom lately witnessed was due to the extremely sharp run of the stocks of WorldCall Telecom Ltd (WTL) that alone contributed 37 per cent and another 51 per cent of the historic volume was driven by only three stocks. Among the 10 volume leaders, WTL remained at the top by contributing 370 million shares, the price of stock closing at only Rs.1.68. Another low-priced stock of K-Electric Ltd (KEL) at Rs.4.54 was the second-highest traded stock with a volume of 107 million shares and Telecard rounded off the top three contributors.
The market was driven by the positive events on the international and domestic front as Pakistan witnessed declining cases of COVID-19 and the arrival of 500,000 vaccine doses from China with another 5 million shots still to come. On the global scene, international crude prices jumped to $56 per barrel due to low supplies and downturn in US stock piles. It brought life to E&P stocks which provided major stimulus to the index. The sector was top performer representing gain of 7 per cent week-on-week and highest contributor of 334 points to the index. Removal of cap on dividend distribution by Mari Petroleum also rejuvenated investor interest.
Foreign investors continued to sell, the outflow clocking in at $2.7 million down from net sale of $9.1 million the preceding week. Selling was witnessed in cements amounting to $2 million and technology and communication $0.5 million. On the domestic front, major buying was reported by individuals $9.5 million; companies $6.6 million and mutual funds $1.96 million. Average daily volume traded stood at 554 million shares, down by 18 per cent while the traded value settled at $171 million, up by 1.2 per cent. The increase in value traded despite lower volume signified greater investor participation in index heavy stocks. Positive contributions came from power generation & distribution at 101 points and fertiliser at 90 points. On the flip side, sectors that contributed negatively included technology and communication at 94 points, engineering at 59 points and commercial banks at 45 points.
For the moment analysts are of the view that the market is going to stay bullish as the pandemic is on the wane removing the fears of lockdowns. Stable rupee and the successful settlement with the IPPs that could scale down the circular debts would also be helpful. The declaration of quarterly results by corporates would help determine market direction where some key companies are to unveil results in the upcoming weeks. Yet profit-taking cannot be ruled out given the investor nervousness over the upcoming FATF Review and on profit booking by investors who may visualise 47,000 points for the KSE-100 index to be too high and that too achieved is a short span of time.
The spectacular rise in the prices of certain shares from 25 March, 2020 to date has left investors gasping for breath. It was not long ago that with the onset of the pandemic the stock market had badly fallen to 27,229 points in March last year but 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.
It has been recorded that some stocks have gone u\p exceedingly well particularly the technology sector have left analysts scratching their heads. TRG Ltd was languishing at Rs.12.87 on 25 March 2020 and it is now trading at Rs.109.50, up 751 per cent in 10 months. Netsol Technologies that no one was picking up at Rs.27.16 is now doing brisk business at the price of Rs.188.05, up 592 per cent. This indicates the huge uplift in the value of these shares that appears to be rather unnerving and unsettling for most analysts. They point out that the rise in the value of these particular stocks in indeed surprising as they do not possess strong balance sheets and they have not given high dividends to their shareholders.
The fears of the stock bubble and is bursting is now a pervading fear of financial analysts. Inquiries have been made from the Securities and Exchange Commission of Pakistan (SECP) about abnormal price rises and whether the regulator believed price bubbles were forming and how it intended to deal with them. The SECP were non-committal about the matter though it emphasised that they have dedicated mechanisms and systems to monitor trading activity and any wrongdoing detected will be accordingly monitored. The Pakistan Stock Exchange is also conscious of this unprecedented escalation in prices and has handed out notices to around a dozen companies asking them to explain the reasons for the unusual movement in their stock prices and also justify them.