By SHABBIR H. KAZMI
June 25 - July 01, 2001
Mohammed Sohail, born in 1971, is the Head of
Research at Invest Capital and Securities Limited (Invest Cap) a
corporate brokerage house. Prior to joining Invest Cap he was Head of
Research at IP Securities. He has also worked in Capital Market
Division (CMD) of National Development Finance Corporation (NDFC),
Vital Information Services and MRJ Securities. He is an MBA from
Institute of Business Administration (IBA). He is a visiting Faculty
Member at IBA since January 1997 and conducts courses like Investment
Banking, Corporate Finance and Business Finance for BBA and MBA
PAGE: What are your views about the
behaviour of equities market in Pakistan?
Mohammed Sohail: The market has remained
range-bound for a considerably long time. In my views factors
responsible for this are: May 2000 Crisis, massive selling by foreign
fund managers, liquidity crunch and preference for fixed income
securities. However, it should also be noted that despite massive
selling by foreign fund managers, the market did not take a nose-dive.
While there has been an over-supply, bulk of the sales were absorbed
by local retail investors and institutional investors. The situation
would have been much better had the GoP not following a very tight
PAGE: How do you co-relate performance of
equities market in Pakistan with other regional markets?
Sohail: First of all it is necessary to
accept the fact that the local equities market has hardly any
co-relation with other markets in the region. Therefore, any
comparison with the movement in these markets may not be correct and
of any consequence. For example, globally interest rates are going
down but we see an opposite movement in Pakistan. Besides, the stake
of foreign fund managers was not only limited in Pakistan the exposure
was also confined to a few blue chips only. One of the main reasons
for their pull out from Pakistan was massive devaluation of rupee over
the years. However, I also believe that Pakistan was not very
important for them when we look at their global investment strategy.
And in case of withdrawal from emerging markets, they preferred to
liquidate their holding at the earliest.
PAGE: Does this has any thing to do with the
risk rating for Pakistan?
Sohail: In my opinion the investment risk is
not high but perceived risk is very high. It is mainly due to adverse
reports about Pakistan published in the western media. They hardly
print positive reports about Pakistan but spare no opportunity to
print negative reports. It is generally said that Investment risk is
very high in Pakistan, but propagators of this philosophy never take
into account a fact that no MNC/TNC has ever left Pakistan. Some of
these corporations did close their operations in Pakistan only due to
shift in their policies. Most of the MNCs/TNCs operating in Pakistan
have expanded their operations in Pakistan, It was not possible unless
they were making reasonably good profit. However, I would like to add
that inconsistency in the GoP policies in the past has been a major
irritant not only for foreign investors but local investors also.
PAGE: How investment decisions, particularly
in equities market, are normally made in Pakistan?
Sohail: The strategy followed by the
investors and those seeking immediate capital gains are different.
However, bulk of daily trading volume is generated by those who want
immediate gains. The volume pertaining to medium and long term
investors has always been low. Therefore, it may not be wrong to say
that most of the buying and selling decisions are not driven by
fundamentals but breaking news, prospects for any announcement for
dividend. In the recent past market was mostly driven by a few brokers
by spreading news and/or rumours. Though, this resulted in huge daily
trading volume but market also remained highly volatile and many
retail investors lost their life savings.
PAGE: What is the way out?
Sohail: It may be true that investment
decisions by institutional investors are mostly based on past
performance and future earnings potential of listed companies. Some of
these institutions have in-house research departments and also get
daily reports from some of the reputed brokerage houses. However,
retail investors do not have access to such information. To help these
investors I have a suggestion. Now in Pakistan a lot of information
and analyses are printed in newspapers and periodicals. Investors must
read and take the advantage of printed reports. I will also suggest
that investors should consult brokerage house but do not allow the
brokers to make decisions for them. It is their hard earned money and
investors should make their own and informed decisions.
PAGE: What is the outlook for equities
Sohail: The outlook for equities market is
largely dependent on performance of the economy. The improved
confidence of international financial institutions will help in easing
balance of payments situation. However, unless agri and manufacturing
sector improve production and productivity higher GDP will not be