The conscious effort to ‘save’ has always been the trademark of the sub-Continental culture. Be it to make one’s son a doctor/engineer,ensuring he gets the best possible education at literally unaffordable prices or collecting items and saving fortune for the daughter’s dowry since the day she was born; the habit of saving is instilled in our culture since ages. No matter to which economic strata one belongs to, every individual in our society strives to save. Some to tackle the unforeseen rainy days, some to take their parents for religious obligations like Hajj/Umrah, some to leave rented accommodation for a personal house and some even to meet the probable expenses of the traditional expensive marriage functions!
However, amazing as it may sound Pakistan is a country where traditionally there was no concept of savings in Banks. And even today, apart from the urban areas there is lesser tendency to do so. Investing in Gold, trading properties, daily wages, the Munshi-system, Hundiare still the financial lingo of today. Ironically, we as a nation didn’t suffer as much as other countries in the different financial recessions over the years, thanks largely to the fact that Credit Cards were still not that popular as in other countries with developed banking systems.
In such a scenario, one can easily visualize the inhibitions of a potential shareholder and trading trends of the Stock Exchange in Pakistan.From the eye of general public, there are mainly three broad probable categories of people (small investors) when it concerns the Stock Market with their specific stock purchasing practices. Firstly, there are those who do this as a full-time business. They are usually into this business, since the time they could literally calculate anything at all. Most of these belong to the Memon community. They were infamous for not operating any bank account, going to the Stock Market with just a mini-bus fare in their pockets and going back home with fruits and vegetables, some solid cash and most importantly the next day’s fare to go to the Stock Exchange, again! The next generation took the business acumen from their parents and combined it with their academics to further secure their stronghold.
Secondly, there are those who want to actively trade and be part of the ‘Lao MaalHungama’.Especially when they come to hear of the unbelievable success stories of folks earning many folds out of virtually nothing in no time; but seldom takes initiative due to lack of working knowledge and the fear of misuse of trust. Although Central Depository Company of Pakistan (CDC) and other private and Government organizations came forward to persuade people to save and invest in Stock Market through media, road-shows and other BTL activities. However this type of investor still seems reluctant mainly due to the following reasons:
1- Past scandals which, unfortunately, are still fresh, haunting many and remain a sad story to tell like that of United, Samad and Tawakkal groups, where people who invested heavily were deprived of their money in the biggest frauds ever.
2- Most importantly, although Government push the people to invest in Stock to be a part of the Economic boom but on the other hand historically have given safe and healthy returns on the Saving schemes which provides local with a better and safer alternative.
3- The image of Stock Exchange also suffered during President Musharraf era when a ‘freeze’ on the Index was enforced. The floor was imposed on the KSE-100 indexduring 2008 which meant that no one could take out their investments for months before the freeze was finally removed and it sent a wrong message across the nation and to the foreign investors.
4- Fake brokers manipulating the scene with unreal or forged physical share certificates dented the Stock’s reputation as well. Thankfully though, it paved way for CDC and electronic trading to the relief of many.
5- Finally, for the decade or so generally there was a string of new companies that registered with the Stock Exchanges and came up with their IPO’s and then they traded way below their initial offered prices to investors, let alone doing any healthy business or fetching their investors any substantial dividends.
And finally the third type of small investors is those who have absolutely no idea of what Stock Exchange trading is all about. They do not have exposure and capacity to understand financial statements and forecasts. They, generally, are not MBA and their lack of financial terms exposure block them to substantiate the claims of the shareholding company and comprehend the roles of underwriters. They may have some saving to invest for future but are likely to invest in gold, saving schemes and/or prize bonds due to ease of availability and relatively more peer information.
Generally, Pakistani public is so mauled and drained by different financialconstraints, especially in wake of Covid-19 that they are not very keen to invest. It is difficult for them to keep up with the necessities and making both ends meet. For them IPO’s is nothing but yet another trick, a private sector scam supported by Banks, where they fail to get back even the original amount invested in many years to follow!
The essence of conducting IPO’s is to expand and increase the public-holding and bringing in more common people into the Corporate sector and trading markets, while giving them part of the company’s ownership (shareholding).
Thus, the focus should be more on the second and third type of people. It is important to lure them in the mainstream business activities to increase the database of the people trading. The first type of people generally does not miss any IPO’s as for them they seldom miss any opportunity to trade that comes their way. The second and third type, the larger chunk of the population is extremely circumspect when it comes to investing in any new IPO’s.
Previously, a new investor who luckily gets away with a 500 shares lot in balloting in a fair IPO would be sorry to hear that the share certificates in the physical form are usually traded at 20% lower prices than the market price, to counter that and to get the full value of the Shares an investor must have a CDC account which obviously cost an account opening and annual maintenance and trading charges. Secondly, a new investor is faced with another problem if he decides to open an account with a Brokerage company. The minimum investment requirement is usually 100,000 rupees to 1,000,000 rupees depending upon prevailing conditions and Brokerage Houses.
Foreign investment also plays a pivotal role and sometime remains the key which generally occurs when Government is playing their cards ‘rightly’! This is the time when the so-called economic indicators depict that the economy is booming. No doubt most of the South Asian Stock markets remains lucrative for foreign investors as even KSE, now PSX, is expected to be trading at low multiples making it even more attractive, but one can not rely on that only. It all boils down to the prevailing political, economic and social conditions. When even such a limited number of IPO’s annually are not getting popularity amongst the locals, how can we expect the ‘Goras’ to come in and invest all the way here and trust us with their money in a market that is not trusted by their own.
Only conducting IPO’s are not an answer to generate masses interest in saving, investing and trading. It should be a meager tactic in a long-term, well sought out and clearly planned strategy; which should come from the higher authorities, the Government, Ministry of Finance, SECP and all those who want to collectively boom the economic activity in the country.