COT Market Review: Average COT rate eases 30bps to 17.5%

KARACHI: The average rate for carryover transactions (COT) at the Karachi Stock Exchange (KSE) decreased by 30 basis points to 17.5 percent last week compared to 17.8 percent in the preceding week.

“The badla rate on Monday touched 18 percent, which is the highest rate since December 4, 2003,” said Faisal Jiwani, analyst at Invest Capital and Securities, a local brokerage house.

The analyst said the spike in badla rates was due to lower supply and rising demand for funds. Banks may have reduced exposure, he said, but the supply side situation will soon ease, as banks would again enter into the market.

During the first three days of the week, badla investment at KSE made three consecutive new highs, but declined on the fourth and fifth day of the week.

The KSE closed almost 600 points above the previous high of 5,621 points. On Friday, the KSE-100 index breached another barrier of 6,200 points and closed at 6,218 points. This is an increase of 2.86 percent over last Friday’s closing. The market has become all the more riskier now and a prudent investor is recommended to practice a high level of caution at this point in time as the market is due for the correction as it is heavily leveraged with high equity prices, analysts said.

Badla investment at KSE set a new high of Rs 37.2 billion on Wednesday (December 29) before declining to Rs 35.8 billion on Friday. There was an increase of Rs 1.17 billion or 3.4 percent in badla investment during the week even though there were concerns about the level of leveraging.

This increase in badla investment was both due to high badla volumes and high equity prices. Badla volumes at KSE increased by 2 percent to 531.4 million shares, on Friday even after the exclusion of Engro and the COT list which had a volume of 7 million shares on Thursday. Badla investment at LSE increased by 35 percent to Rs 3.6 billion on last Friday from Rs 2.6 billion on previous Friday. Com-bined badla investment at two stock exchanges increased by 5.7 percent from previous Friday’s level to Rs 39.4 billion.

Badla investment has increased by 25 percent during December 2004 compared to 12 percent increase in the index. Badla rates in most scrips at LSE also showed decline during the week, Weighted average badla rates at LSE closed lower by 1,980 basis points to 17.8 percent on Friday. Mr Jiwani said 2004 year has already ended, the start of the new year will bring some liquidity in the market as banks are expected to pour some liquidty into the market again, hence causing the badla rates to ease.

The high rates this time are not only the function of year end liquidity pull back by banks but are also due to the over-leveraged position of the market, in which case a little correction in the market will help the rates to cool down, he added.

According a report from to Capital One Equities, Engro Chemicals has been phased out from COT counter on Friday and eased up badla investment for rest of the COT stocks.

Investment in OGDC perked up to Rs 4.6 billion, illustrating an increase of 18.4 percent and badla volume registered 13.2 percent to 63.8 million shares, while the average badla rate came down from 17.1 to 14.4 percent due to punters released their weak holding during the week. — Staff Report

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