CAPITAL MARKETS PLAYING STRATEGIC ROLE
May 28 - June 3, 2012
Capital markets play a pivotal role in the improvement of the economy. It is a significant factor of the financial sector. It helps mobilization of private savings and allocation of medium and long-term financial resources for investment through a mixture of debt and equity instruments of both private and public sectors. A good capital market provides a broad range of fascinating opportunities for both the domestic and foreign investors.
Capital markets in Pakistan offer transparency, most beneficial price, and effective implementation combined with attraction for foreigners as equity market trades at discount compared to regional valuations.
Securities and exchange commission of Pakistan (SECP) endeavors to maintain fair, neat, and effective capital markets. It protects the rights of investors, encourages capital formation, and develops an efficient and dynamic regulatory model in line with the principles of the international organization of securities commissions (IOSCO).
SECP not only allows individual investors to provide financing for investment through European stock exchanges, but also relaxes the 25 percent cash margin requirement for buying shares, further boosting investor confidence.
International institutional investors are encouraged by the growth in the Karachi stock exchange (KSE) but asset management companies that are offering direct exposure to Pakistani equities are finding difficult to find buyers.
KSE played a major role in Pakistan's capital markets, offering efficient, fair and transparent way of trading securities. This can be compared with any market in the region. The market is enjoying full confidence of the investors
According to the stock exchange data, during the period from July-March 2010-11, the capital market showed rising trend and registered modest gains. Total 638 companies were listed at the KSE until March 2010-11 with total listed capital standing at Rs920.1 billion.
Investment in capital market during the period July-March 2010-11 by the foreign investors demonstrated a net inflow of $301.5 million, but remarkable contribution was made during the first two quarter of 2010-11.
During the period July-March 2010-11, the benchmark KSE-100 index showed a steady growth subsiding the economic uncertainties like implementation of reformed general sale tax (RGST) and concerns over losses incurred by the massive floods across the country.
The fertilizer industry has remained the best performer at the capital market, as it has surpassed all sectors in terms of paying 'return on equity' to its shareholders.
The urea manufacturers, who have always been managing to avail smooth gas supply at subsidized rates throughout the year, have paid return on equity by 94.23 per cent, banking sector 17.3 per cent and cement industry 3.86 per cent in 2010-11, capital market experts observed.
During the past nine years, the same fertilizer industry showed substantial growth and remained the first with 45.58 per cent return on equity, even banks were far behind, paying 18.66 per cent return.
Profits of all big participants in fertilizer industry almost doubled during the last calendar year and the major factor behind this increase in earnings has been the frequent increase in the prices of fertilizers.
Engro profits increased by 49 per cent, Fauji Fertilizer Corporation (FFC) 102 per cent, Fauji Fertilizer Bin Qasim Limited (FFBL) 153 per cent, Pak Arab 90 per cent, and Fatima Fertilizer profit also leapt dramatically during the first nine months of current calendar year compared to corresponding period last year.
Engro profit stood at Rs5.33 billion, FFC Rs20.7 billion, FFBL Rs10.89 billion, Pak Arab Rs4.94 billion and Fatima Rs2.42 billion.
In oil and gas sector, 12 companies are listed at the stock exchange. The sector is performing well because of rising demand, higher exploration, and global prices. Its index fluctuated between 12, 523 to 12,166 between July-March 2010-11 and market capitalization advanced slowly from Rs1,042.3 million to Rs1,051.7 million.
Pakistan based oil and gas sector has shown sizable profits due to rising movement of prices. During the year, the sector showed the profit after tax of Rs104.2 billion.
The sector also has the largest paid companies like OGDCL, PPL, POL, etc. and the total paid up capital of this sector is Rs65.2 billion. Oil and gas sector continued to be one of the major market players.
The government has decided to allow through a presidential order investment of 'black money' in the capital market, giving an opportunity to whiten millions of dollars in undeclared earnings.
Different interest groups, especially stock brokers, have been putting pressure on the government for the past couple of months for this.
Under the proposed scheme, black money invested in the stock market for 120 days will be exempted from probe into sources of funds.
The SECP claimed that investors would invest the money earned by them over the past 36 years in the absence of capital gains.
The government should increase the tax-to-GDP ratio to 14 per cent from the current nine percent. The government should also discourage corruption, improve governance, and end the energy crisis by clearing the circular debt of more than $3 billion (Rs272 billion).
Corruption and tax evasion are depriving Pakistan of billions of dollars every year, which needs to be discouraged at all cost. If Pakistan controls corruption and tax evasion, the capital market in Pakistan will have a very smooth sailing.