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Science & Technology

Corporate Profile

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 classes.

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 monetary policy.

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 market?

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 possible.