June 21 - 27, 2004





FAISAL JIWANI is currently working at Capital One Equities as an Equity Analyst. He is responsible for the analysis of Power, Auto and Transport sectors. Prior to this, he worked with Ace Securities as a Research Analyst. He was responsible for equity research in the cement sector and also compiled an investment leaflet of top 30 leading companies of Karachi Stock Exchange. Faisal has done his MBA from Institute of Business Administration (IBA) Karachi. One of his objectives is to serve the organization, wherever he is working, with the skills he has developed. He is also involved in community service.

PAGE: How do you review the recent movement of the KSE-100 index?

FAISAL JIWANI: The KSE-100 index went up from 3000 points last year to a peak of over 5600 and witnessed a fall to current level. However, evaluation multiples have not surged as much. The rallies during the recent past have been factoring in the improved economic fundamentals for the listed companies and cannot be termed misleading. Dividend yields are still attractive but investors should also look at the cash flows of the corporates and also abstain from becoming a victim of herd mentality.

PAGE: Will the budget for 2004-05 have any positive impact on the listed companies?

FAISAL: Duties on import of plants and machinery, particularly those not manufactured locally, have been reduced. Along with this duties on raw materials have been rationalized. Specific attention has been paid to improve income of the rural population, including waiver of duty on tractors. All these factors will induce more farm-based activities and will strengthen the agriculture base of the country. The performance of Pakistan's two industries, textiles and sugar, is directly dependent on adequate availability of raw materials at competitive prices.

PAGE: Which sectors enjoy the highest growth potential?

FAISAL: Telecommunication, banking and the financial sectors have immense potential for growth in the medium to long term. The tele-density in the country is very low and there exists a huge potential in the rural areas. Currently, the government's deregulation policy is focusing on it as PTA has offered two licenses each for LL and LDI, which has generated tremendous interest among local and foreign investors. Heavy capital expenditure is expected to take place in the industry and the recent relaxation of duties on the import of machinery is a major step in this direction. Banking sector will benefit on the back of increased borrowings by the private sector and the financing schemes such as car and housing finance. Government is also encouraging SME financing, which is a high yielding business.



PAGE: No incentive has been announced for cement sector. How would this impact the construction sector?

FAISAL: Although no incentive has been directly announced for the cement sector, indirect incentives in terms of higher expenditure by the government on infrastructure and reduction in duties machinery used in construction will bode well for the industry.

PAGE: Will new capacity in fertilizer sector be added?

FAISAL: No major reduction in input costs has been announced in the budget. The key factor on which addition of new capacity is dependent is the gas (feedstock) price. Feedstock constitutes a major part of total cost of production. It is expected that the GoP will shortly announce the amended Fertilizer Policy. A committee was constituted to suggest changes in the existing policy to ensure investment in grass-root plants.

PAGE: What should be the facets of forthcoming National Industrial Policy?

FAISAL: The forthcoming National Industrial Policy should address the challenges emancipating from the WTO regime along with focusing on the smaller sectors that have not been showing much growth in the recent years. A little support to the sectors ignored in the past will make them able to come out of their gloom. This in turn will help in accelerating the industrial growth rate even further up.

PAGE: What is the outlook for GDP growth?

FAISAL: I feel that Pakistan has now established strong macro-economic fundamentals and is all set to come out of economic instability which has prevailed in the previous years. This has provided enough fiscal space to the government to allocate more funds for the PSDP in the proposed finance bill, which would spur economic activity, and augur well for the sustenance of GDP growth rate in the country. Private sector credit off-take has increased in the current fiscal benefiting textiles, auto and housing sector, whereas few banks have been very liberal in high yielding SME lending, which again serve the same purpose. The proposed widening of the budget deficit supports our view of GDP growth. However, on a micro-level further rationalization is needed.