Market stumbles as bears keep the driving seat (30072009)

LEADER REPORT
KARACHI: The selling pressure was continued on Tuesday on the back of the expectation of further increase in discount rate.
The monetary tightening will have adverse impact on the equity market, as it will increase the finance cost of leverage sectors and decrease the profitability, decrease in demand of funds due to the high cost will impact the business of the banking sector and cost of funding system of the equity market will also increase.
The market opened with the bearish note and declined around 300 points; almost all major scrips hit their lower circuit breakers.
Later on buying interest was witnessed. The buying interest was basically on the back of the perception of investors that the market has discounted the impact of further increase in discount rate to an extent, while an exceptional increase will bring bearish sentiment to the market.
The recovery could not bring the index in the positive zone, while after volatile activity in the negative zone index closed down by 130 points from the last session at 10,448 points.
The rupee showed a stable performance, the expected raise in discount rate will further suck the liquidity from the inter-bank market and provide more stability to the Rupee. The SBP has warned banks to bring the Karachi inter-bank offer rate up to 13 to 13.5 percent.
The rise in KIBOR is basically due to the expectation of increase in discount rate. With monetary being announced, tightening is expected to continue, the fund created by the regulators is expected to provide support in the crisis situation of the market.
The government needs to take measures to improve the economic situation of the country, decrease its borrowing and regain the investors confidence. Investors are recommended to keep a cautious stance and invest in E&P, Fertilizer, Power, and Telecom sectors and after the clearance of the monetary policy uncertainty, in first tier banking scrips.