Interview: Syed Ibadul Haque

SADAF AURANGZAIB, Senior Correspondent
Jan 29 - Feb 04, 2007

The stock market continued to maintain its strong performance and achieved new heights by creating many new records during the fiscal year 2005-06. The KSE-100 Index crossed the barrier of 12000 marks for the first time in the history of capital market and touched an all time high on April 13, 2006.

The KSE-100 Index made further inroad and reached 12274 points on April 17, 2006, showing a growth of 64.7 percent over June 2005. Similarly, the total market capitalization also increased to Rs.3419.4 billion on April 17, 2006 (US$ 57.0 billion) from Rs.2013.2 ($ 33.7 billion) showing a growth of 70 percent over June 2005. At current levels, KSE's market capitalization is equivalent to about 46 percent of estimated GDP of FY06. The government's economic policies and capital market reforms helped in promoting a fair, efficient and transparent capital market and restoring investors' confidence.

In order to get the whole picture of the market scenario, we met Syed Ibadul Haque of Mars Securities Pvt. Limited that offers a range of diversified financial services with its prominent focus on Investment Banking and Investment Advisory services and is fast emerging as a financial services boutique.

In the meeting we talked about the issues concerning the capital market reforms and its effect on the overall market performance, where Mr. Ibad seemed quite hopeful and positive about the upward trend of the Stock Exchange and was also optimistic that the inflationary pressure would subside as the international pressure of oil prices was easing up and things were encouraging in the long run for the investors to invest in. To our concern on the sharp and erratic fluctuation of the market which has resulted in various problems for the customers, he said that the hedge funds are needed to be controlled as well as the entry and exit of any person in the stock market. He also pointed that the customers need to be more cautious before investing in and should get the knowledge of any funds that they are about to invest in as this can prevent them bearing losses on the investment.

He agreed with the measures that have been taken by the State Bank in the form of tight monetary and fiscal policies, which, he said, could be the only way to keep up a consistent approach. On account of SECP he said that the recent provisions and reforms are highly appreciating and where they need any amendments, the SECP will respond to it so all in all he was of the view that the recent scenario of the capital market trend is encouraging and we should look at the positive side as that is the only way to survive and compete in the tough times.

The capital market is defined in the following terms:

•Capital market is the broad term for the market where investment products such as stocks and bonds are bought and sold. It includes all the people and organizations, which support the process.

•This market brings together all the providers and users of capital. Financial products such as stocks, bonds, mutual funds, and insurance make the transfer of capital possible. Financial intermediaries, such as banks, brokerage firms, and insurance companies facilitate the transfer of capital.

•The capital market is the market for long-term loans and equity capital. Companies and the government can raise funds for long-term investments via the capital market. The capital market includes the stock market, the bond market, and the primary market. The government monitors securities trading on organized capital markets; new issues are approved by authorities of financial supervision and monitored by participating banks.

In view of the above mentioned definitions it is very clear that capital markets are the backing support of the economy and it's a reflection of the overall economic progress going on inside a country. In Pakistan the capital market is under the influence of the inflationary pressures, which sometimes manipulate the capital structures of the market. The performance of the capital market depends on the investment and the investor's portfolio; if the graph of investment and investors portfolios is going backward that means that it will project the hindrance in the capital market performance. Currently State Bank and SECP have introduced various reforms in order to curtail the volatility factor that is lurking in our exchange operations. Certain measures have been taken and it's been said that if the new reforms would be taken seriously, it will help the exchange function more transparent like Khalid A. Mirza, the SECP Chairman, while describing the reform structures said that the introduction of electronic communication networks (ECNs), margin financing and demutualization are the next steps needed to carry capital market reform forward. He also said that it was very important that margin financing be made available to market players by banks and through other channels. It would be ideal if margin financing, together with the futures market, were to essentially replace the badla or carry over transaction system, which carries systemic risks. He said that at a structural level, the stock exchanges will have to demutualize in line with international trends and in order to provide the capital markets institutional underpinning, we need to develop and strengthen mutual funds, pension funds, and the insurance industry. He also said that it would be a major boon for the capital market if the recently enacted Takeover Law was drastically amended.

State Bank has also introduced measures such as tight monetary and fiscal policies to bring more consistency in the operations of the market. Efforts like cash reserve ratio, etc. will have a long-term effect to moderate the money market volatility, which in a way will be fruitful to the capital market performance.