The stock market in the last quarter of the current fiscal year would witness a fresh liquidity of as much as Rs 10 billion in the shape of mutual funds to be floated by financial institutions, banks and leading brokerage houses of the country.
Faysal Bank has planned to float an open-end mutual fund worth Rs 1.5 billion; Arif Habib Investments Rs 3 billion; Picic Rs 2 billion; Abamco Rs 2.5 billion and a little over Rs 1 billion from other financial institutions and some brokerage houses.
The main objective behind the floatation of mutual funds is to pass on the benefits of current rally at the stock market, and to tap retail investors who are hesitant to enter the capital market and have little knowledge of where to invest, said an analyst from a leading brokerage house.
He said that mutual fund would be a blend of equity and interbank market because several funds are expected to restrict their 70 percent funds to stock market and rest to carryover transaction, treasury bills, Pakistan Investment Bonds and terms finance certificates.
"One purpose of mutual funds would be to guide the investors and give an opportunity for retail investors to have access to large capitalised stocks which at present are at their peak levels and high prices are not within reach", he said.
The size of the mutual funds would be doubled before the end of 2004 as banks would divert their stock market investments to their respective mutual funds as these institutions have to limit their equity investment as per new prudential regulations introduced by the State Bank of Pakistan.
Responding to a question, an expert from the financial sector said: "Yes, the market is sailing at historically high level but improvement in marco economic indicators, such as growth in exports, revenue collection, foreign exchange reserves, government's task to reduce overseas debt, positive response from foreign investors in country's sale of Eurobond, easing of tension with India and low interest rates, will help sustain the market to grow further."
He said that the index in 2002 grew by 112 percent, in 2003 by 66 percent but if the share market registers an increase of around 25 percent in 2004 and mutual funds' performance is in line with the stock market, returns would be quite healthy.
He explained further that if the mutual funds gave a return of 20 percent in a year it is a healthy portent because other avenues are paying less, such as deposits at bank are paying nearly 3 percent, National Saving Schemes are around 6 percent and the property prices are on fire and need huge investments.
Total banking sector deposits and investments in NSS stood around $28 billion whereas the size of mutual fund sector is only $1.2 billion which is only 4 percent.
The mutual funds sector in the USA is estimated around $4.5 trillion in comparison to their deposit base of around $3 trillion.
Khalid Iqbal Siddiqui, research analyst from the Investcapital Securities, said that the focus of investors in local bourses has now shifted towards sectors which are showing growth rather than those which are offering stability in dividend yields.
That is why with the economic situation now much improved, and liquidity in the hands of investors, focus has shifted to market multiples rather than dividend yields.
"By growth we mean that the sectors will experience top line growth owing to increasing demand, which may also flow down to the bottom line. Among these, the exploration and petroleum sector has good growth potential as the government is laying great emphasis on indigenous resources.
Another growing sector is the gas distribution companies where returns are based on assets. Both the 'Suis' are going for heavy asset-base expansion."
Khalid said that the cement sector, a turnaround story, is yet another growing sector as demand has grown by 14 percent per annum over the last two years and is expected to show double digit growth in next couple of years also.
Car sales are also expected to continue to grow amid buoyant liquidity situation. Synthetics and textile sectors are also two growing sectors.
In the financial sector, insurance would perform well due to rise in economic activity and banks because of deposit-driven volume-based growth have the potential to move up.
Foreign multinational companies will continue to experience growth owing to higher per capita income. The telecom sector is also expected to show some growth as demand for fixed and cellular lines has picked up considerably.
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