MARKET HAS ENORMOUS UPSIDE POTENTIAL
Excerpts from an exclusive interview with Salim
Chamdia, Chairman, Karachi Stock Exchange
By SHABBIR H. KAZMI
Jan 14 - 20, 2002
Salim Chamdia has been elected as the youngest
Chairman of Karachi Stock Exchange, at the age of 37 years. Chamdia is
a Chartered Accountant and one of the active and prominent members of
the Exchange since 1991 and has held a number of important offices,
initially as a Director in 1993, Honorary Treasurer in 1994 and Vice
President in 1997. He was also elected Vice Chairman of the Exchange
for 1999 and 2000. During his tenure as Vice Chairman, he was also
responsible for Information and Technology Committee. He was the team
leader for various IT related projects particularly computerisation of
major areas of operations & trading, clearing and settlement and
market information systems. Presently, he is Chairman and Chief
Executive of Salim Chamdia Securities, a corporate member of the
The year 2001 was proved to be very difficult for
the securities markets around the world due to fear of US-led global
recession and the disaster at the World Trade Centre and Pentagon on
September 11, followed by ongoing tension on our eastern borders.
However, in view of a number of positive developments, both
internationally and locally which, inter alia included assistance from
donor countries, removal of international sanctions imposed after the
country went nuclear in 1998 as well as successful negotiation with
Paris Club relief on the debt issue, financial assistance approved by
the Asian Development Bank and announcement of economic packages and
financial commitments by a number of developed countries besides the
decision of the European Union about the removal of duty on many
Pakistani value added projects, I am very much optimistic that the
market will see better times during the current year which will be a
turning point for our market and the economic revival of the country.
The year 2002 has started with great hopes and
KSE-100 index has started registering upward movement. While some
analysts express their apprehensions about the sustainability of this
trend, most probably they do not take into account the economic
fundaments. Re-profiling and restructuring of external debt has
improved sovereign rating of Pakistan. The European Union has
withdrawn duty on many value-added products of Pakistan and also
enhanced Textile Quota by 15 per cent. All these factors will usher in
a new era of enhanced economic activities in the country and a direct
and positive impact on equities market.
While prices of volume leaders and their daily
trading volume is expected to improve, enhanced activity in consumer
goods, cement, and textile sectors will also be witnessed. This is not
an statement only, sound economic fundamental and emerging trading
pattern also confirm this. Though, one may argue that synchronised
global recession has dampened the outlook for textile sector, this is
the appropriate time to go for expansion and BMR for achieving higher
value addition. Pakistani manufacturers of textiles and clothing have
to get ready to face competition after December 31, 2004 when there
will be no Textile Quota.
Performance of cement sector was dismal in year
2001 mainly due to low off take and high fuel cost. Commencement of
process of reconstruction and rehabilitation in Afghanistan, funded by
international agencies and fall in furnace oil prices, offers
opportunity to Pakistani cement manufacturers to improve capacity
utilisation by exporting cement. Pakistan enjoys the advantage of
proximity of location and road links. It is an edge over other
countries, but price of cement has to be competitive. The GoP must
resolve the outstanding issues faced by cement sector to improve its
competitiveness. Export of cement will improve the capacity
utilisation, which will optimise the cost of production. Lower prices
of cement will also provide a boost to local construction industry.
The Karachi Stock Exchange appreciates the efforts
of present economic managers. In my own view also support by other
colleagues, the GoP must reintroduce the policy of imposition of 10
per cent tax on excess reserves and exempt tax on bonus shares. TFCs
issued before 30, June 2001 should continue to remain exempt from tax.
Capital markets play an important role in resource mobilisation.
Therefore, capital formation should not be taxed, rather the GoP
should provide more incentives for capital formation for increasing
productive facilities in the country. Enhancing economic activities is
the best way for poverty alleviation.
The Karachi Stock Exchange believes in
self-regulation. I have proposed to the Board of Directors to
implement grand trading system and introduce Internet based trading.
Shortly we will also undertake programme for promoting the equities
culture and investors' education. We want to restore the confidence of
investors in equities market, which offers attractive dividend yield.
Similarly, efforts are underway to provide a simple
and expeditious procedure for resolution of investors' complaints.
During the year we will be also reviewing our Rules & Regulations
and more consentration will be placed on strengthening the Listing
Regulations so that listing of only quality companies is ensured.
Improvement in the physical infrastructure of the Exchange building is
another important area which will include in our agenda for the year.
However, we plan to take various steps for the improvement of
corporate governance. Though, number of TFCs have been listed in last
two years, the number of new listing has remained very low.