Preferring capital gains over dividends: Companies listed on KSE contributing towards negative trend

The equity investors might have their own reasons to prefer capital gains over dividends, but the companies listed on Karachi Stock Exchange (KSE) are contributing significantly towards this flourishing negative trend on the country's largest bourse.
If the collection of Capital Gains Tax (CGT) by the National Clearing Company of Pakistan Limited (NCCPL) is any criterion, the risk-averse investors appear to believe that the country's volatile stock market is an investment window meant for short-term gains.
This approach, partly, enabled the NCCPL collect over Rs 1.6 billion CGT during July-December of FY15 (1HFY15), up 163.5 percent compared to Rs 626 million the company had collected during the corresponding period of FY14.
Meant to promote long-term investment on equity market, the CGT rate ranges from zero to 12.5 percent depending on the period of shareholdings under Finance Act 2014. The period under review saw the NCCPL undertaking settlements worth Rs 704.96 billion against more than 24.68 billion shares traded.
Among other factors, a deepening tendency among the profit-making listed companies to omit the declaration of dividends for their shareholders seems to have made the investors averse to long-term investment.
Official data reveals that of the total 573 companies listed in 2012 on KSE, 94 or 16.40 percent omitted dividend despite showing profits for the year on their balance sheets.
"The companies omitted dividends are those which have shown profit during the year but not declared dividend," explains KSE's Annual Report 2014.
This number swelled to 114 or 20.28 percent in 2013 when the number of listed firms shrank to 562. Of the total, 43.7 percent or 246 companies shared their profits with the stakeholders. To this effect, the year 2012 was worse with 243 of them sharing dividend: cash and stock.
A sector-wise break-up shows that the personal goods or textile category topped the list of companies which disappointed their shareholders the most. Some 42 of 175 textile firms omitted dividends in 2013.
Other sectors to dampen hopes were financial services (12), chemicals and cement (10 each), food producers (8), Non Life Insurance (7), commercial banks (5), equity investment instruments (3), general industries, engineering, travel and leisure, electricity and life insurance (2 each), industrial metals and mining, support services, automobile and parts, leisure goods and technology hardware and equipment sectors (1 each).
This does not include 139 firms which the KSE report depicted as loss making.
Interestingly, even the most profitable sectors have been lagging behind in benefiting their equity holders in accordance with their financial positions.
One such sector is the banking one. The 23 commercial banks listed on KSE have largest, Rs 413.87 billion, of total Rs 1.16 trillion listed paid up capital of the market.
According to Amreen Soorani of JS Global, earnings of the country's banks in 2014 skyrocketed by 47 percent, year-on-year, to Rs 158.22 billion from Rs 107.83 billion in 2013. In 2015, these numbers are expected to grow by 12 percent.
Despite this, none of the banking stocks could make it to KSE's recently-issued list of top 25 listed companies that, the front regulator declared, as best performers in terms of dividend payment besides other investor-friendly things.
The KSE annual report shows that during the years under review, the number of profit-making companies has increased to 360 from 337.
The KSE report shows the number of listed companies to have further contracted up to June 2014 to 557, whereas there is no mention of how many of them declared dividends.