“The budgets over the last five years have all but hurt the stock market,” laments a senior stock broker. Past performance leaves him with little hope for the upcoming budget 2018-19. Like Oliver who “asks for more”, the Pakistan Stock Exchange (PSX) has once again put forward the begging bowl.

But the government might all but pull its pockets inside out. No one really believes that the corporate tax rates would be trimmed and there are slim chances for a change in the Super tax regime.

In their April 19 ‘strategy report’, brokerage BMA Capital Markets observed: “Two key areas for excitement are potential favourable changes in taxation regime on sources of equity returns (such as capital gains tax, dividend yield and stock split) and the passage of the Amnesty scheme.

But where several proposals of the PSX may be turned down by the government, it makes sense to provide incentives for companies to seek listings. The Exchange has proposed that tax credit of 20 per cent be allowed for five years from the tax year in which a company is listed on the bourse.

“Companies would be happy to float Initial Public Offerings only if they are convinced that the benefits and returns outweigh the risks and potential hazards of going public,” says a senior market participant.

It makes sense to provide incentives for companies to seek listings given the global trend of corporate delistings

Optimists are cherishing hopes of huge inflows in stocks in case the Amnesty Scheme gets through, for where else would it be safer to invest laundered money? The taxmen can keep an eye on the property acquired and it is never safe to hide heavy sums under the mattress.

The number of companies listed on the PSX is abysmally low at 559, representing a decline from 638 corporations that were traded on the exchange six years ago.

On the other hand, the number of firms seeking registration at the Securities and Exchange Commission of Pakistan (SECP) has forever been on the rise, the current tally being over 100,000 which produces the ratio of registered to listed companies at 180 to one.

This puts prospective equity investors at a disadvantage since they have few options and a lot of liquidity chases only a few blue-chip shares. It also triggers intense volatility in the market.

Muneer Kamal, chairman of the PSX board, told this writer that prior to the retreat of the stock market in May 2017, companies were lining up for listings, however, most had to put their plans on hold for fear of under-subscriptions.

The PSX chairman’s statement is corroborated by the ‘daily quotation sheet’ of the Exchange. On May 25, 2017 at the height of the bull market when the KSE-100 index hit the all-time high of 52,876 points (having reverted to settle at 45,388 points last Thursday), as many as 17 companies were in line who had “Applied for listing”.

Those vying to enter the capital market at the time included: Dalda Foods Limited; Inbox Business Technologies Limited and a host of funds in Prosperity Planning: Gold Fund; Energy Fund; Capital Protected Fund; Active Allocation Fund; Asset Allocation Fund; Strategic Allocation Fund; Treasury Fund and privately placed Sukuk.

The current ‘quotation sheet’ shows approval to issue prospectus (offer for sale) given by the PSX to seven companies: At-Tahur Limited; Hira Terry Mills Ltd; Dalda Foods Ltd; Liberty Power Tech Ltd; Unicol Ltd; TPL Life Insurance Ltd and Inbox Business Technologies Ltd. Yet, most are waiting for a turn in the tide of the market before asking investors for cash.

Regulators as well as investors eye with envy hundreds of prosperous companies in cellular, pharmaceutical, fast-moving consumer goods and other sectors that make tonnes of money in profit but keep it all for themselves, loathe to share by going public.

Several established companies such as Unilever have even sought stock market de-listings. While the motive of such companies may be considered selfish, it does make investment sense.

In a low interest rate environment banks pester big conglomerates and powerful companies offering them money at minimal interest rates.

Why then must such companies enter the capital market to mobilise funds and get trapped in the hassle of dealing with rowdy public shareholders in annual general meetings? And get inundated with tonnes of paper work required under the ‘code of corporate governance’, running the risk of punishment at the slightest error?

But the corporate disenchantment with listing is not Pakistan specific. Globally, corporatisation is giving way to sole-proprietorship. The Wall Street Journal makes a stunning disclosure in an article in its Jan 4, 2018 issue: “In 1996 more than 7,400 companies were listed on US stock exchanges; today that figures is less than half”.

A year ago, the Journal wrote that since the financial crisis, the equity market had become bifurcated with a private option available to select investors and a public one that was more of a last resort for companies. “America’s Roster of Public Companies is shrinking before our eyes,” The Journal affirmed.

It is understandable then that persuasion and incentives are the only means of bringing more firms under the fold of the equity market.

“Revert to say one to two per cent lower tax rate on listed companies over unlisted firms seems justified”, says a local fund manager who looks after Rs12 billion of public money in equity, bond and money market funds.

Published in Dawn, The Business and Finance Weekly, April 23rd, 2018