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Is creation of stock market support fund a prudent approach?

During this past week the benchmark index of Pakistan Stock Exchange (PSX) posted one of the largest weekly gains of 7.65% or 2,537 points. The last highest gain of 9.1% was posted in first week of April 2009. All sessions of the week closed on positive note, depicting restored optimism of investors on the back of market support fund and deferred oil facility by Saudi Arabia. Another important point worth mentioning is that foreigners remained net seller of US$3.44 million and they were joined by mutual funds and insurance companies, with US$5.4 million and US$2.8 million respectively, as against these individuals emerged net buyers with US$5.5 million. Analysts believe that the euphoria surrounding market support fund could persist in the immediate term.

Once my mentor, Sohail Abbas (who groomed me for economic reporting, particularly on capital market) said, “Brave nations don’t mourn catastrophes, be these natural or manmade, but work with the resolve to achieve new targets by using the remnants.” If Prime Minister Imran Khan is talking about building a vibrant and robust Pakistan, his economic team has to come up with ‘home grown’ strategies to put the economy of the country back on track and boost GDP growth rate. In this regard mobilizing funds through capital market should be on top of the agenda. If the mere talk about flotation of a market support fund can bring a drastic change in investors’ sentiments, the decision to launch such a fund must be made without any further loss of time.

Head of Research of a leading asset management company (AMC) said, “The sooner the decision is made the better it will be. We should not waste time on discussing whether such a fund should be floated or not. All the market stakeholders should arrive at the consensus about the size of the fund and contribution to be made by the participants, who wish to join hands. The probability of making loss is the least because prices are touching very attractive level. However, the scrips have to be picked very carefully.”

Talking about size of the fund, he said, “Ideally the size should not be less than Rs25 billion. First a consortium should be formed with indicative amounts to be contributed by each participant. Since there will be one buyer, unnecessary competition could be avoided. Mobilization of Rs25 billion should also not be a problem as more two dozen AMCs are operating in the country and an equal number of commercial banks are operating in the country. They can simply borrow additional amount by hypothecating part of their ‘long-term investment’.”

Deciding about consortium leader also should not pose any problem; it could be based on the rule ‘one who manages the largest equity fund’. One can still recall that in the past NIT had made an attempt under the guidance of it’s the then Chairman, Tariq Iqbal Khan that not only provided the immediate impetus, but also yielded substantial profit for the AMC. It is also necessary to remind that Khan’s decision attracted a lot of criticism.

 

At IBA, students are taught not to talk about problems, but discuss solutions. I am obliged to refer to one of the lessons taught by one of my most respected faculty members, Dr. Sharafat Ali Hashmi. He used to say, “A problem well identified is half solved”. Keeping the spirit in mind, the problem is well identified and the solution is also known, ‘injection of liquidity to put the market on upward trajectory’. Now those who are willing to form the consortium have to just work out the modalities and decide the time to commence purchases. It is my humble suggestion that purchase should be completed before the market closes for Eid holidays to make small investors ‘happier and merrier’.

It is suggested that an immediate meeting of Presidents of Mutual Funds Association of Pakistan (MUFAP), PSX Stockbrokers Association and Pakistan Banks Association with Chairman, Policy Board of Securities & Exchange Commission of Pakistan (SECP) and Chairman SECP of should be called immediately. The agenda should comprise of: 1) deciding names of the consortium members, 2) finalizing amount to be contributed by each member, 3) picking up names of top ten scrips and 4) announcing the date to commence purchases.

I am sure, this proposal may attract a lot of criticism, but the people with whom the issued was discussed are of the consensus, “The situation may not be unique, but it demands ‘out of the box’ solution. We are lucky there is a precedence, which has not only provided support to Pakistan equity market in the past, but also yielded exceptional benefits to the unit holders of the AMC.

Shareholding of Foreign Investors
DateShares held by
Foreign Investors
Total Outstanding
Shares
Total % held by
Foreign Investors
May 23, 2019120,939,327801,476,60015.09%
May 22, 2019120,659,827801,476,60015.05%
May 21, 2019120,439,327801,476,60015.03%
May 20, 2019117,188,327801,476,60014.62%
May 17, 2019119,534,327801,476,60014.91%
May 16, 2019117,319,827801,476,60014.64%
May 15, 2019114,586,327801,476,60014.30%
May 14, 2019114,068,827801,476,60014.23%
May 13, 2019114,068,827801,476,60014.23%
May 10, 2019114,068,827801,476,60014.23%
May 09, 2019114,068,827801,476,60014.23%
May 08, 2019114,068,827801,476,60014.23%
May 07, 2019112,368,327801,476,60014.02%
May 06, 2019112,318,327801,476,60014.01%
May 03, 2019112,248,827801,476,60014.01%

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