The Securities and Exchange Commission of Pakistan (SECP) has launched an inquiry into the reports of “market manipulation” by Nestle Pakistan, Pakistan Today learnt on Friday. The benchmark, KSE 100-share index, is believed to have long been driven by the blue chip heavyweights in the volumes-starved equity market like Oil and Gas Development Company (OGDC).
Top giants led artificial benchmark
This perceived list of index’s drivers has, recently, incorporated the name of Nestle Pakistan which, the market participants believe, had become the second largest in stocks in the KSE 100 basket after energy giant OGDC. It was the illiquid stock of Nestle, along with Unilever Pakistan, that added approximately 7.5 per cent to 21 per cent annual gains of the KSE 100 index during the recently concluded fiscal year 2011 that saw the index, closing at 12,532 points, 2,802 points or 28.5 per cent up against 9,730 points in FY10. And perhaps for this reason the market participants called the KSE 100-share index as an “artificial” benchmark that, they say, does not represent virtual share trading and the price movement at the country’s largest bourse. “If someone buys (preferably when the market starts and there are hardly any sellers) one share (of Nestle) for Rs5000 the so-called representative index would increases by 51 points thereby enhancing the market capitalization by Rs12 billion,” said Mohammad Sohail, Chief Executive Officer of Topline Securities.
Market manipulation sending wrong signal to investors:
This “market manipulation”, analyst said, could send a wrong signal to the common investors who make their investment decisions in accordance with movement of the benchmark. The regulators in the SECP have finally heeded to the repeated calls from the critiques and is said to have initiated an inquiry into what a spokesperson of the Commission said “suspected market manipulation” by the Nestle Pakistan. “Nestle is under probe by the SECP for manipulating the index at KSE,” sources at Karachi Stock Exchange told Pakistan Today. They said the inquiry was launched on the basis of media reports on market manipulation by Nestle.
When contacted an SECP spokesperson confirmed initiation of the probe. “Yes, (Nestle is under investigation) for market manipulation,” Shakil Ahmed, Communication Head at SECP, told Pakistan Today in a telephonic conversation from Islamabad. Having limited details of the SECP action, the spokesman said that the monitoring of stock price movement being its regular function the Commission always remains on guard against any “abnormal” movement in the price of any of the listed companies. “If there is any abnormal movement we probe the trading,” Shakil said adding “We are probing into this price increase in Nestle.” Asked if any team or committee had been formed to conduct the investigation, the SECP spokesman replied in the negative. He said that the Monitoring and Surveillance wing of Securities Market Division was performing the job as a routine function. “Yes, we are looking into it,” said Imran Inayat Butt, an official form SECP’s Securities Market Division.
Asia’s most liquid equity market in crisis
Such malpractices along with many other attributive factors keep investors away from KSE, which was once Asia’s most liquid equity market where on Friday the trading volumes declined to a 10 month low of 29.5 million shares. “Today the volume at KSE was as low as 29.5 million shares,” a small investor said adding “It is 10-month low volume as the last lowest was 30 million.” The investor cited the bloody violence in the metropolis, which was shattering the confidence of investors at KSE for the last three days, as a major reason for the head-on slump. “Even daily volumes at KSE remain range bound to nine-year low level of 50 million. So this violence has gone on to aggravate the situation,” he said.