KARACHI: A market support fund of Rs20 billion should be set up under the management of National Investment Trust (NIT) to revive the stock market, stakeholders told Prime Minister Shahid Khaqan Abbasi on Saturday.

Directors of the Pakistan Stock Exchange (PSX), senior brokers and representatives of mutual funds held a meeting with the premier at the Governor House to discuss the issues confronting the equity market.

Mr Abbasi directed the authorities concerned to set up a committee, under the chairmanship of Sindh Governor Mohammad Zubair, which should forward the demands of market participants to the prime minister for review.

The participants explained to the prime minister that a similar support fund was also set up during the 2008 stock meltdown under the aegis of NIT. The asset manager was provided with a bank guarantee of Rs20bn by the government to raise funds from state-owned financial institutions.

Mutual funds, including NIT, are currently sitting on piles of cash. Arif Habib, former chairman of the stock exchange, praised the premier for patiently listening to the woes of market representatives.

“We explained to the prime minister that the (2008) support fund worth Rs17bn was later liquidated on market stability in 2014. It fetched the government Rs31bn. It brought a windfall of Rs14bn for the government and helped shore up revenues for the budget,” he said.

Tell PM Abbasi to let govt plough back money into PSX

“Being the biggest investor in the stock market, it is in the interest of the government to rejuvenate the market,” another participant of the meeting reportedly told Mr Abbasi. The brokers fished out figures and laid them before the prime minister, noting that the stock market has lost as much as $20bn since its peak. The government’s investment was eroded by one-third, or roughly $6bn.

“We pointed out that the government estimated the tax collection under the capital gains tax at Rs18bn in the budget. We asked the premier if it was prudent to lose Rs650bn for the sake of just Rs18bn,” said Khurram Schehzad, chief commercial officer at JS Global, who also participated in the meeting.

The market players told the prime minister that the government has sold its holding worth around Rs200bn since the index peak. Allocating only 10pc of that for the support fund should not make a big difference, they said.

The market representatives also demanded that the withholding tax on bonus shares should be levied on the face value instead of the market price. “As corporates distanced themselves from bonus issues, the government received only Rs500 million under this head last fiscal year. We have assured (the government) five times that sum from (this) tax if the demand is accepted,” said Mr Habib, adding that the move will also revive small investors’ interest in the market.

Stock brokers also lamented that their withholding tax at 0.01pc, which was previously adjustable, was raised in the budget to 0.02pc and treated as full and final settlement.

The KSE-100 index was at 20,000 points when the PML-N government assumed office. Its price-to-earnings ratio was 8.5 times at the time. At the current level of 40,000 points, the ratio is 7.7 times, which suggests that corporate growth has improved. It is time for the government to plough back money in the stock market, the premier was told.

The panel of brokers and mutual fund managers also took exception to the ban on the buying of the PSX stock by foreign investors. “Chinese strategic investors who had bought 40pc majority shares at Rs28 a piece are concerned about the current discounted market value of Rs19 and are keen to buy more shares to average out,” said another broker who attended the meeting.

Published in Dawn, October 15th, 2017