Cut in interest rate settles badla rate in 14 percent range

KARACHI (November 25 2002) : The badla rate at the Karachi Stock Exchange (KSE) was in the range of 14 percent after central bank cut the interest rate and now lenders adjusting themselves with the new 10-day badla system.

This adjustment coupled with the central bank's signal (through 1.5 percent cut in discount rate) of reduction in interest rate helped in easing high badla rates during the last week.

However, the weak position as depicted by badla indicators is on the rise. It looks like that investors during the week build their positions amid hope that PML-Q led government will take power. That is why the KSE Index gained 75 points or 3.3 percent last week with better volumes.

According to a report of Invest Capital Securities the 10-day badla that started with 30 percent at KSE amid fear that lenders will withdraw their funds from the market, has now settled down at around 13-14 percent.

On Friday weighted average badla at KSE ended at 13.9 percent compared to 17.5 percent last weekend. Similarly, at LSE badla rates closed at 17.8 percent on Friday coming down from last weekend's rate of 26.8 percent.

Lowering of rates by the SBP coupled with ample liquidity in the inter-bank market helped rates to ease in the local badla markets. Going forward badla rates are expected to move in the existing band as it is still one of the few avenues providing double-digit returns in Pakistan.

Despite some relief in the rates of badla at KSE and LSE, weak holdings at both the bourses are increasing as depicted by the badla volume and investments.

Around 230 million shares worth Rs 7.8 billion were rolled over at KSE and LSE on Friday. These numbers are higher compared to last weekend when investors leveraged around 206mn shares valuing Rs 6.8 billion.

During the week PTCL and Hub Power saw rising badla volumes.

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