Is creation of stock market support fund a prudent approach?

• Author: Kazmi, Shabbir
• Position: Report

Byline: Shabbir Kazmi

During this past week the benchmark index of Pakistan Stock Exchange (PSX) posted one of the largest weekly gains of 7.65% or 2,537 points. The last highest gain of 9.1% was posted in first week of April 2009. All sessions of the week closed on positive note, depicting restored optimism of investors on the back of market support fund and deferred oil facility by Saudi Arabia. Another important point worth mentioning is that foreigners remained net seller of US$3.44 million and they were joined by mutual funds and insurance companies, with US$5.4 million and US$2.8 million respectively, as against these individuals emerged net buyers with US$5.5 million. Analysts believe that the euphoria surrounding market support fund could persist in the immediate term.

Once my mentor, Sohail Abbas (who groomed me for economic reporting, particularly on capital market) said, "Brave nations don't mourn catastrophes, be these natural or manmade, but work with the resolve to achieve new targets by using the remnants." If Prime Minister Imran Khan is talking about building a vibrant and robust Pakistan, his economic team has to come up with 'home grown' strategies to put the economy of the country back on track and boost GDP growth rate. In this regard mobilizing funds through capital market should be on top of the agenda. If the mere talk about flotation of a market support fund can bring a drastic change in investors' sentiments, the decision to launch such a fund must be made without any further loss of time.

Head of Research of a leading asset management company (AMC) said, "The sooner the decision is made the better it will be. We should not waste time on discussing whether such a fund should be floated or not. All the market stakeholders should arrive at the consensus about the size of the fund and contribution to be made by the participants, who wish to join hands. The probability of making loss is the least because prices are touching very attractive level. However, the scrips have to be picked very carefully."

Talking about size of the fund, he said, "Ideally the size should not be less than Rs25 billion. First a consortium should be formed with indicative amounts to be contributed by each participant. Since there will be one buyer, unnecessary competition could be avoided. Mobilization of Rs25 billion should also not be a problem as more two dozen AMCs are operating in the country and an equal number of commercial banks are...