PSX new investors set a record for the second month running in October, even as share prices fell and trading thinned out. The investor base grew by 25,747 during the month, beating September’s 25,281, which Adviser to the Finance Minister Khurram Schehzad had called the highest ever for a single month when he announced it on 1 October. The fact that October surpassed September’s record, which had itself been described as the highest ever, underlines the momentum in new account openings.
The KSE-100 Index gained 43.5 per cent in the fiscal year that ended in June, and that rally may have pulled many newcomers in. A rise of that scale over a fiscal year is a powerful attraction for savers and investors who may previously have kept their money in bank deposits or other assets. The prospect of participating in a market that had risen so sharply would have encouraged many to open accounts, even if they had not invested in shares before. The timing of the inflow, in the months after the end of that fiscal year, suggests that the rally’s effect on sentiment continued into the autumn.
The Securities and Exchange Commission of Pakistan, working with the clearing house, the central depository and the exchange, raised the Sahulat account ceiling from Rs1 million to Rs3 million and scrapped duplicate checks for investors coming in through banks. The Sahulat account is a simplified account designed to make it easier for new investors to enter the market, with lower documentation requirements. Raising its ceiling from Rs1 million to Rs3 million allows investors to hold larger amounts in such accounts, while scrapping duplicate checks for those coming through banks removes a procedural hurdle that may have discouraged some from opening an account. The changes, made by the regulator in cooperation with the market infrastructure institutions, are presented as part of the explanation for the growth in new investors.
The KSE-100 fell 2.1 per cent in October, its second straight monthly decline, and closed at 166,409 points. The fall in the index during the same month that new investors arrived in record numbers creates a contrast: while the market was declining, more people were joining it. That pattern suggests that newcomers were not deterred by the short-term fall, or that they saw the decline as an opportunity to enter at lower prices. The second straight monthly decline also indicates that the market had been weakening for two months, after the strong gains of the previous fiscal year.
Average daily volume dropped 21.9 per cent from September to 470 million shares. The fall in volume shows that trading activity was lower in October than in the previous month, even though the number of investors was growing. Volume is a measure of how many shares change hands each day, and a drop of more than a fifth is significant. It suggests that existing investors were trading less actively, perhaps because of uncertainty or because they were holding their positions rather than buying and selling frequently.
Daily traded value slid 20.3 per cent to $70.07 million, and foreign investors pulled out $48.8 million. The fall in traded value, which measures the total worth of shares traded each day, mirrors the fall in volume and points to a quieter market in October. The outflow of $48.8 million from foreign investors is a separate factor, showing that overseas investors were net sellers during the month. Foreign flows can influence sentiment, and an outflow of that size would have added to the downward pressure on the market.
Taken together, the figures for October present a market in transition: record numbers of new domestic investors arriving, while prices fell, volumes thinned and foreign investors withdrew. The growth in the investor base is a long-term positive for the market, as it broadens participation and brings in new capital over time. The short-term weakness in prices and trading, by contrast, reflects the more immediate pressures facing the market in October. How the new investors fare, and whether they remain in the market, will depend in part on how the index performs in the months ahead.
Source: Focus Pakistan, SECP.
