May 26 - Jun 01, 2003



Nasim Beg is at present Chief Executive Officer of Arif Habib Investment Limited. He was instrumental in setting up this mutual fund company. Prior to this he worked for National Investment Trust (NIT). He played an active part in the turnaround of NIT. He has over 32 years of experience out of which 16 years pertain to financial sector working abroad as well as in Pakistan. He is on the Board of Directors of a number of companies. He is also a member of the Executive Committee of the Mutual Funds Association of Pakistan. Nasim is a Chartered Accountant by profession. He completed his articleship with A. F. Ferguson & Company and stayed there from 1965 to 1970.

PAGE: The KSE-100 index has crossed 3,000 level, what will be its future direction?

NASIM BEG: Looking at the strong economic fundamentals, earnings potential of listed companies and the prevailing liquidity, the index is expected to continue its upward movement. Saying this, I also believe that we will experience minor ups and downs, as day-to-day market sentiments impact prices on an ongoing basis. Most of the scrips are still trading at below the average historic earnings multiples. Almost all the volume leaders still offer very attractive dividend yields. Therefore, more funds are expected to flow to equities market. With the further improvement in corporate earnings dividend yields are expected to remain attractive despite the hike in prices of scrips.

PAGE: Is there any difference in rallies of nineties and present euphoria?

NASIM: The single but most visible difference is that foreign fund managers drove rallies of nineties. Whereas, present increase, I would not call it euphoria, is mainly due to the active participation of domestic institutional and retail investors. As almost all other investment options offer much lower return than that offered by the quality equities, investors are now investing more and more funds in the equity market. The other, also very important difference, is that in the nineties investors bought shares without properly looking at the earnings potential of those companies. Today the investors ask questions about track record, future plans and earnings potential. The credit for the better equity environment goes to much better regulation and disclosure requirements as well as the better quality research published by brokerage houses.



PAGE: Why there has been constant increase in the prices of volume leaders?

NASIM: The prices till about a year and a half ago were trading at very low levels around multiples of three times earnings. The overall confidence level was very low. With the markedly improved political and economic conditions today, the earnings multiple has come up to around eight times still at a discount to our historical average. Add to this the robust earnings growth, the prices are still very attractive. Investors are looking at high dividend yields in context of the very low fixed income returns on debt securities and deposits etc. In addition to this, there is a large amount of liquidity chasing a few scrips. The general perception is that the number of quality large capitalisation scrips can be counted on ones fingers. The market float of large-cap companies still is small.

PAGE: How the supply of scrips offering modest dividend yield can be increased?

NASIM: The GoP is keen in pursuing its privatisation policy. However, although the process started about fifteen years ago, it has not moved at the desired pace due to various factors. In the prevailing circumstances, the preferred policy would be to list all the state-owned enterprises and off load a part of the GoP holding through stock exchanges. This will help the GoP to realize funds from sale of shares of these entities and still retain the management control pending ultimate sale to strategic investors as and when all other arrangements are complete. The GoP has off load only 12.5% shares of PTCL. The State Bank has a policy, requiring all the commercial banks incorporated in Pakistan to be listed on the local stock exchanges. However, Allied Bank of Pakistan, Habib Bank, United Bank and some smaller banks are yet to be listed. The Government has recently announced a policy to offer shares of OGDC and other entities, including the Pakistan Steel Mill through the exchanges. This is a good policy.

PAGE: Earlier you talked about creating awareness among the investors, what more should be done to create awareness among the masses?

NASIM: Pakistan experienced two major financial scams of investment companies and cooperatives; in addition we also had a not-so-talked- about scam of siphoning off by many listed companies as I said earlier, set up for the wrong reasons. The bulk of the blame must lie on the then regulators who slept and did not take any corrective measures; a lot of blame also goes to investors for being driven by greed. The regulators today, both the State Bank and the SECP, have improved considerably.

The Mutual Fund Association (MUFAP) has decided to launch an awareness programme. We want investors to take informed decisions and assume a well-calculated risk in line with their risk taking capacity. Our company, Arif Habib Investments is also running awareness programmes on its own and we have a fair amount of investor education material on our website. We also run training seminars for our investment facilitators.