The investment of banks and other financial institutions in the first half of the current fiscal year recorded a rise of Rs 7.4 billion in the equity market following a series of positive steps taken by the government and promise of good returns by the corporate sector.
The stock market witnessed an increase in exposure by the banks and development financial institutions which amounted to Rs 37.323 billion at the end of December, 2003, up from Rs 30.053 billion on July 1, 2003.
According to an analyst, a couple of positive factors convinced the banks and other institutions to put their funds at the stock market.
He said that the continuous decline in yields on government bonds and treasury bills encouraged financial institutions to divert their funds to the stock market.
The yields on treasury bills have fallen more than six percentage points since the State Bank of Pakistan has cut the discount rate to 7.5 percent in November 2001.
Similarly, the yields on three-,five-year and 10-year bonds also slipped, now ranging between 4 to 6.5 percent, whereas the dividend yield on companies listed at the stock market at present is hovering at 8 percent to 11 percent, he added.
The index has risen almost 63 percent in 2003 while in 2002 it rose by 112 percent, which reduced the dividend yields.
A year back some of the companies were offering yields of as high as 22 percent, he said.
He said that the air of positivism is felt after the successful end of the Saarc summit, which opened the locked doors.
The willingness to conduct talks between India and Pakistan and the lifting of the ban on airspace all boosted the economic situation in the country, particularly in the government owned organisations.
The confidence of the stakeholders is evident from the figures of investment, which at present estimated at Rs 37.323 billion, in the period ending December 2003.
Similarly, the banks and financial institutions exposure in the badla financing also bolstered.
On July 1, 2003, their investment in badla market was around Rs 4.323 billion while at the end of December it was nearly Rs 9.390 billion, a whopping jump of 117 percent.
The management of the stock market is making strenuous efforts in building its image and improving confidence among the local as well as foreign investors.
The prime objective of the management in the current year (2004) is to provide a fair, transparent and efficient market with a level playing field for all market participants, investors and issuers.
At the same time, all the stakeholders should be subject to the discipline, law and rules and regulations of the exchange.
During the year all efforts would be made to develop derivatives market, which will include introduction of index and option trading. The KSE was the only market in the world which recorded higher turnovers after introduction of T-3 clearing systems.
Similarly, efforts will be made to reactivate the futures market comparable to the international standards.
Both the management and SEC are trying hard to develop and activate the market. The ultimate goal for an efficient and fair market should be risk free investments.
For this purpose there is a need for extensive debate for all the risk management issues which will not only help in attracting the investors but ultimately it will lead to further development of the market.