By Naween A. Mangi
Nov 16 - 22, 1996

Aqeel Karim Dhedhi, the man behind AKD Securities and Safe Deposit Company Limited, and one of the biggest brokers in the stock market, is well known, despite his low profile, for his razor sharp understanding of the way the market works and the potential to use rumours and market news in the trading process. And with a brilliant and extensive network around the country, Mr Dhedhi always has his finger on the pulse of the market. Having spent several years during his childhood and adolescent years watching his father, also a broker, at first the Bombay Stock Exchange and later at the Karachi Stock Exchange, Mr Dhedhi himself has a twenty year track record in the brokerage business. Here, in an exclusive interview with PAGE in his office on the fifth floor of the Stock Exchange Building Mr Dhedhi discusses his views on the current state of the country's capital markets.

PAGE: How do you view the current state of the country's capital markets?

AKD: The level of the market is very low at the moment and during the last year there has been continuous pressure in the market; macroeconomic fundamentals have remained weak, and have worsened, and other issues like the recent downgrading by Moody's, the prolonged IMF tussle, repeated devaluation of the rupee, and low export growth. have all contributed to the host of troubles. The economy seems to have gone from bad to worse and there has just been no good news from the market's point of view. All this adverse news has exerted further pressure on the market and the President finally had to dissolve the government. Now the caretaker government has come in and they are in a position to take some positive steps for the improvement of the market. The capital market can benefit the most from this recent change. With the support of the President the new managers can bring in long term changes and take some solid decisions. If they do so, and if the next elected government continues with the reforms, then we will be okay.

PAGE: What corrective steps need to be taken and what is the solution to this situation?

AKD: The one and only solution for our markets is the privatization of our assets and units. It is really the single solution for survival. If the sale of UBL, HBL, PTC, SSGC, SNGPL is further delayed then we will be in a very precarious and difficult position. Immediate privatization can yield results but the problems of decision making we have had so far must be overcome. And this now looks possible since World Bank people are neutral and in a better position to do so. This will be a positive move for the capital markets and for the whole country. Elections should be held later, after this process of change has been initiated; it is easier for this government to do so than a political government which will inevitably be under political pressure.

PAGE: It is often said that sentiment drives Pakistan's markets more than fundamentals. What do you think?

AKD: I do not agree with this. Sentiment drives all markets, and Asian markets in particular. The examples of Bombay ad Thailand all show that this is the case. But there are all types of investors in markets; some may be in the market for trading gains only, but there are long term investors as well.

PAGE: Eleven companies were recently delisted by the KSE. What needs to be done to protect shareholder interests?

AKD: The recent delisting of these eleven companies is a very good move. We need very much to take such decisions. Some companies have also been placed on the defaulters counter, and those who have wished to avoid such a situation have been offered to buy back their shares from the market. Some have accepted and have done so at a premium to their current market value. For the adequate protection of shareholders, companies' dividend paying records should be assessed on a 3-4 years basis and if management is unable to run the company effectively, action should be taken by the regulators.

PAGE: How active is the small household investor in the stock market and how important is he to the market?

AKD: Small shareholders are of crucial importance, not only to our but to any market as they bring genuine savings into the market and are there for long term gains. In our market, however, small shareholders will find it very hard to survive. Institutions and corporate members are the largest players in our markets; in fact in current times, there are really no small investors at all. The way in which the market has come down, people have booked very substantial losses during the last year. Now, at this point, it is very unlikely that they will return to the market. If we look at the index, it has slid from the 2600 levels to the 1450 levels and those scrips in which small investors have not really had holdings, like PSO, Pak Refinery, Siemens, and Philips for example, have not fallen. On the other hand, those scrips in which there were small investors' holdings have come down by 80-90%. This was mostly in the modarabas, leasing, mutual funds and textile sectors; and in these sectors, more than 75% of the companies do not pay dividends and are in losses. Delisting and other such measures will boost investor confidence and persuade the small investor back into the market. The troubles in our market are largely due to the absence of the small investor and he must be brought back.

PAGE: How important are mutual funds to the stock market?

AKD: Several private sector mutual funds have come on line in the last two years but have so far not performed well, and there is no confidence in these funds now and the recovery of these companies is very difficult. Seminars and other awareness campaigns should be carried out to promote confidence and understanding, and reduce speculation in the market. NIT, ICP, Pak Libya and State Life have a very important role in supporting the market; however, they have been selling intensely for the last two months or so and this has further depressed the market. State Life, in particular has been selling heavily and they do not even have liquidity problems. This should stop straight away. Further, the recent management change at NIT is a very positive move and similar changes should take place in other institutions as well.

PAGE: How will the upcoming Central Depository Company improve operations?

AKD: The CDC is a welcome change; it will greatly reduce the physical handling of shares and the associated problems and inefficiencies will be reduced. Investors often complain that when they send shares for transfers, the process takes between 2-3 months instead of the 45 days standard time. The CDC should be on line at the end of December or the beginning of January and that should improve things quite a lot. Also the computerization the KSE has reduced investor complaints and enhanced transparency in dealings.

PAGE: How important is equities research?

AKD: Research has become very important for investors to make informed decisions. The quality of research in the country is average but will improve with time. There was no concept of research some years ago and now investors demand it so standards will improve over time.

PAGE: If my total savings were Rs 1 million, how would you recommend I save or invest?

AKD: Well, if that is your total capital, I would advise you to put 30% in the stock market in long term scrips which will generate a good return. Do not go for short term gains. As for the rest, I will not recommend any rupee bank deposits since with this continual devaluation, this is pointless. Property is perhaps a better investment.

PAGE: Which are your favourite sectors and scrips?

AKD: Well, all sectors are depressed, but otherwise the power sector would have to be my favourite with Hubco as my number one choice and Southern Electric as number two. The fertilizer sector is also another good one in which no bad news is forthcoming. In fact, fertilizer is the only industry in which we can compete with India if trade is opened. Otherwise, I do not think Pakistan can benefit from such trade since we cannot compete with them in the other sectors; be it cotton, textiles, sugar, cement or anything else.

PAGE: So what is your overall outlook?

AKD: Well, changes are coming in which will help the situation. We have hit rock bottom and can only pick up now. Hopefully the future of the capital markets will improve from now on.