The not so curious case of TRG Pakistan
KARACHI: Leverage is a trap and TRG Pakistan is the bait. Scrip has declined around 32 per cent since November 17, when the sexual harassment charges against the CEO of Afiniti, one of TRG’s subsidiaries, first appeared.
TRG is the highly leveraged scrip at the bourse. According to market sources, over 50 per cent of volumes generated in TRG are leveraged. Such stocks are always under pressure during the rollover week, a period when the future trades are settled and rolled over, which ignites aggressive selling, particularly in a bearish environment.
TRG Pakistan took a hit due to the harassment charges, and subsequent stepping down of Zia Chishti from the office of CEO, as well as board of Afiniti; but it happened just a head of rollover week.
In April 2020, TRG’s stock stood at around Rs12. It then climbed to Rs51 in August 2020. At the time, the Securities and Exchange Commission of Pakistan (SECP) asked the bourse to investigate allegations of insider trading, which is just one of those things. TRG successively reached Rs180, and now it is on the downward trajectory. Analysts still believe the stock is worth Rs160.
The stock market is rolling over Rs30 billion worth of leverage this week, and TRG’s share is around a colossal 10 per cent (225 million shares), which is a monthly routine.
Market blames certain brokers for inconsiderate financing TRG buyers and keep pushing the scrip up, which is the typical market strategy. The financiers (usually brokers themselves) earn interest on the advances, and mint additional profits on the share price movement, which is manipulate-able.
Betting on price appreciation, traders take financing to buy as much stocks, which obviously multiplies profits. However, correction in such stocks forces the traders to offload and pay the financiers.
Price manipulation is easy, all the financiers have to do is stop financing and exit the market. Prices crash, traders suffer and valuations get ripe for bottom-fishing. This is the case with TRG Pakistan.
Zia Chishti’s story did have some impact, it caused the correction. And the quantum of leverage did the rest. Nevertheless, the market believes the scrip will recover in the coming week after the futures are settled.
Moreover, the company issued a statement to the bourse mentioning, “There is no change to report in our forecasts for our portfolio companies where revenues appear stable.”
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