The fast increasing trading activity at KSE indicates that the capital market is reviving following the measures taken by KSE, SECP and the ministry of finance. These views were expressed by Karachi Stock Exchange Chairman Muneer Kamal and Managing Director Nadeem Naqvi at a joint press conference at KSE Auditorium, here on Wednesday.
"Despite crisis, the average returns from capital market are much higher as compared to all other investment avenues," they said. They said that average returns from KSE in last 10 years (2001-10) were 33 percent as compared to 20 percent from gold, 10 percent from PIBs, 8 percent from T-bills and 4 percent from bank deposits.
They said KSE is considering enhancing upper and lower circuit breakers of each individual share from existing 5 percent to 7.5 percent. The KSE is also considering rationalising weight of individual companies in its benchmark KSE-100 index. They said KSE may change the base of the benchmark KSE-100 index to free float of stocks from price at present.
In his opening remarks, KSE Chairman Muneer Kamal made it clear that the 2008 crisis was because of overall economic meltdown in the country. "It was not the stock market crisis," he said and added that the market massive fall was result of economic meltdown in the country.
Managing Director Nadeem Naqvi, in his detailed presentation briefed the media about the regulatory and administrative measure taken by KSE, SECP and ministry of finance for enhancement and development of the capital market. On a question, he pointed out that the KSE is considering rationalizing weight of individual companies in the benchmark KSE-100 index. "The KSE management may change the base of the benchmark index to free-float of stocks form price at present," he said and added that the decision would end dominance of some large capitalised stocks in the index.
After the implementation of this, the weight of Oil and Gas Development Company (OGDC) in KSE-100 index will reduce to seven percent from existing 15 percent and the weight of Nestle Pakistan will reduce to one percent from six percent, he said. He pointed out that India has already done it successfully.
The MD said that the limit of Investors Protection Fund has already been increased to Rs 75 million from Rs 25 million for each broker. He said IPF is used to clear investors' claims in case of default of any broker. He pointed out that around 6000 investors submitted their claims amounting to Rs 2.6 billion after the 2008 market crisis in which 10 brokers were declared defaulters. The exchange had done audit of 3,600 investors worth Rs 1.3 billion.
He said the investors having claims of up to Rs 0.5 million received full payment against their claims while the other investors received their payments at the average of 33 percent of their claims.
He said the exchange had spent Rs 5 million on technological advancement in the last four years. The market is owned by 200 members, of which 135 are active. Over 600 companies are listed at the KSE. The market capitalisation currently stands at $34 billion against $75 billion in March 2008.
The market had four indices including benchmark KSE-100 index, KSE-30 index, KMI-30 index and All Share index, while two new indices namely Oil and Gas Index and Banking Index have been introduced recently. He said some new products including SLB, MTS, ETF's, Sector Indices, Cross Border Index Listings and Options are in pipeline.
He said the listed companies raised Rs 316 billion of equity capital through issuance of rights shares during last 10 years (2002-11). It demonstrates the important role that KSE has played in allowing companies to raise long term capital for growth. Over Rs 122 billion were raised by the government of Pakistan between 2003 to 2007 from privatisation through the stocks exchanges, he said, adding that "It indicates how the government of Pakistan has been the direct beneficiary of a thriving capital market that allow market driven valuations of state owned companies.
He said declining trading activity at the stock exchange was the major concern as daily volumes declined to 79 million in CY11 from 365 million in CY05. Learning lessons from past crises, the management of the exchange has taken various measures for investors protection including brokers quality and capability, strong financial penalty and regulatory co-ordination, pre-emptive risk management, power to investors and investors protection fund. "The investors protection is a key points of focus," he added.
He also briefed the media about the key measures managing operational risk including information security, risk management gateway to members, client level margining and new margining regime. About the new initiatives to broaden the investor base, he pointed out that the management of the exchange has launched its 'Vision 2014' with the aim to increase investors base to 500,000 from 250,000 at present and a comprehensive, time bound action plan to generate investor awareness by joint forum of all capital market institutions, SECP and the reactivated institute of capital market. The initiative for launching a dedicated SME Exchange is an initiative to increase listings, he said.
About some structural issues that are hampering the market growth, he said corporate tax structure anomaly is really an issue in this regard. "The partnership/proprietorship tax rate of 20-25 percent against corporatized business tax rate of 35 percent is a huge disincentive to listing on the stock market. The lack of liquidity is another issue, as banking sector is nearly absent from capital market financing, partially due to stringent regulations and due to crossing out by the government. The poorly designed and inappropriately times imposition of new Capital Gains Tax regime also affected investors sentiment. Perception of unfair treatment for equity investors and perceived fear of harassment by tax officials of individuals has driven out retail investors form the market, he added.
He said absence of market makers and lack of incentives for debt market are some other structural issues hampering market growth while cumbersome SCRA regulations are major disincentive for non-resident Pakistanis to invest in the domestic equity market. "No systematic, institutionalised effort to expose Pakistan's capital market to global investors and the Pakistani Diaspora," he added.
The Deputy Managing Director of KSE, Haroon Askari said that the management is considering enhancing upper and low limits of circuit breakers in each of individual shares. He said the KSE board of directors would consider enhancing limits of maximum fall and maximum gain in individual stocks in its next meeting.
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