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Badla rate shrinks

KARACHI (December 02 2002) : The cut in discount rate and some liquidity flow at the Karachi Stock Exchange (KSE) reduced the weighted average badla rate to 12.5 percent from 14 percent a week ago.

The story at the LSE is a bit different as the weighted average badla rate shot up to around the 20 percent mark on the first two days of the week. However, during the course of the week, influx of more money chasing these higher returns caused these rates to stabilise around the 13-14 percent mark as well.

According to a report of Invest Capital Securities the badla investment at KSE and LSE was at around Rs 7.7 billion on the previous Friday (November 22).

On Monday (November 25), total badla financing at these two bourses touched a level of Rs 8 billion, since then it has been on a consistent decline. Last Friday (November 29), the total badla investment at KSE and LSE remained at around Rs 7.3 billion, depicting a Rs 0.4 billion decline on a week to week basis.

The major factor contributing to lower badla investment was the lower share prices as compared to the previous weekend (and Monday), as the Index suffered a weekend to weekend decline of 61 points (2.6 percent).

The impact of the discount rate cut has asserted itself fully in the inter-bank money market with yields in tenors at record low levels. The availability of returns on investment in the badla market at around 13-14 percent, are expected to be more than enough to satiate the requirements of badla financiers. With borrowers being able not to allow release of badla transactions for up to ten days, we don't expect many violent swings in weighted average badla rates at the KSE going forward.

A report of IP Securities said that during the current week, genuine buying spree in the blue chips was witnessed while the weak holders remained sidelined amid concerns on geo-political front.

Average COT investment in PSO declined by 3.2 percent while average COT volumes in PSO improved by 1.9 percent and correspondingly stood at Rs 1.39 billion and 7.6 million shares. The average COT investment and average COT volumes in Hubco (which is offering good dividend yield

of 18 percent at its current price of Rs 28.60) surged by 3.3 percent and 3.6 percent respectively. On the other hand, PTCL's (which provides a 13 percent dividend yield) average COT investment and average COT volume correspondingly declined by 25.7 percent and 24.4 percent.

As for the next week brokerages believe that the average COT rate is likely to hover around its current level. However, the emergence of any political crisis in the future on account of the withdrawal of MQM's support for the new government can lead to negative sentiments for the KSE-100 as well as for the COT investment and volumes.

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