2010 – A poor year for KSE

KARACHI – Most of the indicators for trading and non-trading affairs at Karachi Stock Exchange marked a negative trend if examined in totality on the eve of fast approaching new calendar year 2011.
Holistically saying, the outgoing year did not see the country’s largest bourse proving to be an investor-friendly equity market with most of its belongings continuing to lose their face value over the last couple of years.
According to sources, the KSE’s membership card, which once used to be rated at over Rs 145 million, was now available at the meager price of Rs 50 million. Further, out of 200 trading booths at KSE’s trading hall throughout the year only 26 remained occupied by KSE members, their representative or tenants. Another negative sign, the sources pointed out, was some 214 offices at the KSE premises of which at least 42 were still lying vacant due to absence of investors.
“Running a house at KSE costs the members at least Rs 0.3 million every month… it’s not affordable in the prevailing situation,” the sources said. They said a low trading activity and the resultant losses had decreased the face value of these offices which were presently available for Rs 6.5 million against the Rs 12.5 million, its rates some three years ago.
The rent of the offices at KSE had also registered an alarming decline by standing at Rs 35,000 as compared to Rs 0.125 million a couple of years ago. Out of total 200 card holders some 25 remained inactive in the share trading with at least two enlisted companies, Potential Securities and Shahid Darvesh Securities, declaring bankruptcy during the year.
However, the KSE management was yet to auction assets of the defaulting firms and clear payments of the share holders, the sources claimed. Last year in 2009, some seven listed companies had made history at KSE through declaring insolvency in a single year.
Prominent among them were Eastern Capital, Capital 1, Shabbir Ismail, Shakoor Securities, Sikandar Bakasra Securities and A A Ghani Securities. On the trading front, the analysts view that negative factors like half a dozen taxes including the controversial capital gains tax, lack of leverage products etc., kept the trading volumes low at KSE during the outgoing 2010.
“The traders have to pay one percent cliental money to the KSE, two percent withholding tax, 17 percent federal excise duty, 10 percent capital gains tax and then income tax at the end of the year,” a small investor complained while talking to Pakistan Today.
The analysts counted the average daily volume in 2010 at 122 million shares marking a decrease of 29 per cent when compared to the previous calendar year. While a decline of 41 percent was noticed against 2009 at the KSE where share trading was valued at Rs 4.4 billion during 2010.
“Against the peak-time volume of 650 million, the average share trading at the KSE remained as low as 100 million during 2010,” an analyst told Pakistan Today. While a majority of investors, particularly small ones, suffered due to unpopular levies like 10 percent CGT and thus tantalizing for gains, the Karachi stock market let big investors from abroad and home pocket handsome amounts through investing money in certain blue chip sectors like oil and gas.
“During the year about 90 percent of shares were traded by the investors abroad as well as the local institutions from banking and insurance sectors,” said the analysts adding that foreign portfolio investment of $430 million made during 2010 was, however, a positive sign.
The local active traders at KSE include National Bank of Pakistan, MCB Bank, Allied Bank, United Bank, Habib Bank Limited, Faisal Bank, Summit Bank, Silk Bank, Standard Chartered Bank, Admajee Insurance, Habib Insurance etc.
Ironically, the sources told Pakistan Today that whereas the small traders were restlessly awaiting the introduction of leverage products at KSE, it was lying in the Ministry of Law for an approval. “SECP has cleared the leverage product which is now waiting for the nod of law ministry,” said a small investor at KSE adding “This (leverage product) would augur well for us as we would be adding more to the volume.”
Demanding the introduction of “blank” selling of shares, the investor suggested that the authorities should also revise the T+2 (Transaction+2) into T+5 while introducing the leverage product.
“This would positively reflect on the volume and holdings of the investors,” he opined. In general terms, 2010 marked the equity market gaining 26 percent with the KSE-100 benchmark driven masterly by blue chips like the Oil and Gas Development Corporation. While the analysts take the OGDC as a distorting factor for the local bourse, the small investors back the view that ever-increasing share price of the energy giant was reducing their capacity to trade more.
“The per share price of OGDC has inflated to Rs 168 from the previous Rs 48 which is beyond the reach of a small investor who has limited money to trade on,” said an investor.