Flotation of stock market support fund delayed on flimsy grounds.

Author:Kazmi, Shabbir
Position:Pakistan Stock Exchange's government guaranteed fund

Byline: Shabbir Kazmi

The benchmark index of Pakistan Stock Exchange (PSX) is on persistent decline for the last two years. The recent hike in policy rate by 100bps has further accelerated the decline rate. It seems that the ship (PSX) has been abandoned by the captain (regulator), its engine has stopped working (daily trading volume has reduced to historic low) and passengers (investors) have been left at the mercy of hide tides (pressure of the IMF).

Before making further deliberations, one point must be made clear that the prime purpose of the stock exchange is 'capital formation' and not revenue generation. The most distressing fact is that the focus of incumbent government has reduced to a single point, mobilization of tax and hardly any effort is being made to boost economic activities in the country.

In May this year, a suggestion was made to float a 'Stock Market Support Fund' and the proposed amount was Rs20 billion. In the prevailing situation the work has to be done 'on war footing' because each passing day is aggravating the miseries and in no way 'sweeping the issue under the carpet' can offer a 'natural' remedy.

However, the simplest option of allocation of Rs20 billion has been delayed on all sorts of flimsy grounds. The believers of 'maintaining status quo' say this fund cannot be floated without a sovereign guarantee. They also go to the extent of saying that 'now Pakistan is under IMF Program and it needs formal approval of the lender of the last resort to issue sovereign guarantee.

However, the believers of 'out of the box thinking' insist that IMF is not there to curb economic activities in Pakistan, it simply demands certain operating procedures that are based on rationale and the outcome of the decisions have to be gauged against the targets.

It will not be for the first time that such a fund is being created for the support of investors in equities market. A similar fund was floated in the past which enabled National Investment Trust (NIT) to earn about Rs14 billion. The total amount mobilized from EOBI, National Bank of Pakistan (NBP) and State Life Insurance Corporation (SLIC) was Rs20 billion.

The Fund primarily bought shares of state owned enterprises (SoEs) which provided an opportunity to small investors to take an exit. This time the same strategy may also be followed because shares of most of the listed companies, particularly SoEs, are quoted far below their break-up value.

There was a suggestions that mutual...

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