A speacial feature in the Pakistani, especially Karachi, Stock Market which has turned around lives of millions over the last couple of decades and is known to many as "Badla", "COT", "CFS" and "CFS Mk-II" is again playing an instrumental role in what could be termed as a "much needed correction". Badla in its true form is financing to buy more shares/ stocks than one's capacity. It is like bank financing with financing rates much higher than bank borrowings.
Effectively, whilst the small players have used to buy shares through Badla the big players use this as amoney making machine. They take bank borrowings at 12% and offer badla to small investors at may be 18%. There has always been a spread of atleast 3-4% which the big players have historically capitalised on.
I mentioned in my previous post that removing Badla, in a very fast growing Stock Exchange may not be a bad idea. for instance, we have seen the Stock Market index climb 50% in 2 months. Certainly, one should construe this as a serious point for a big correction and people with badla do tend to lose their wealth when big corrections take place. I believe that SECP may have undertaken the step to stop badla activities to largely protect the small investors from failing. My issue with SECP is that it did not handle it properly. You do not announce such decisions so abruptly and that too in the evening.
SECP should have introduced a better alternative instrument having better features. It is the responsibility of a regulator to work out modalities to protect all investors.
What the SECP has in store for all of us going forward is yet to be seen !!!
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thank you very much for your post.finally somebody is doing something to guide small investors like me.what i would really want to know is 1-how do you see the market from here on and 2-what scripts do u recommend based on the yield..as in which one is expected to deliver the best mix of capital gain as well as dividends...lets say 3-6 months from here on--thanks again..ur posts are evry informative
ReplyDeleteThank you so much for your kind appreciation of my posts. As to how the market will move here onwards one needs to assess a few points. Firstly, the foreigners have been net sellers in this market for last 3 months and only recently the investments in stocks have started to pour in meaning that foreigners are once again interested in buying KSE stocks. Secondly, the top 9 shares including MCB, POL, OGDC, NBP, FFC and JSCL will be once again listed on international stock exchanges from June 2009. Thirdly, the local fund managers and institutions have started heavy buying of shares and the forex reserves are stable for now. currency devaluation has come to a halt and the 2 major political parties namely PPP and PML(N) are finally working together post reinstatement of the Chief Justice of Pakistan. Lastly, the earnings have been very good as announced by all the top 100 companies. Also, the stocks this year have all been trading at very attractive PE ratios. Presently, trading at around PE of 5-6.5, stocks are still very attractive and have the capacity to go up to a range of 8 to 9 over the next 3 months. I feel the index has the capacity to touch 8,500 within the next 2 months. obviously, there would be corrections and profit takings but one must hold on to their investments and build on them. start buying in chunks, average out your prices and build your portfolio. The only uncertainty here is the war on terror. this could have an impact on the stock market. The badla issue seems more or less digested as there was only Pak rupees 2 billion badla outstanding when the announcement came from SECP. this is a very small amount compared to almost 55 billion when the market crashed last. over the last 2 days approx more than 50 crore of badla positions have been squared so there is an opportunity now to enter the market.
ReplyDeleteNBP will go spot next week and who ever holds this share till the end of next week will earn Rs 6.5 per share dividend and 20% bonus shares.
In terms of dividends over the next 3 to 6 months, I would say OGDC and HUBCO are the best dividend machines for this period. Alot of the companies have recently paid out dividends as part of their annual payouts so in the short term these two will be good paymasters.
please let me know if there is any clarification needed.
No man thanks alot...ur explanation has already helped me make right purchase...cheers and i look forward to your valuable posts...
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