KARACHI, Oct 30: Dr Salman Shah, adviser to the prime minister on finance, said that it was heartening to note that the country had a very healthy capital market. But he urged the Karachi Stock Exchange to take all necessary steps to increase the number of retail investors, keeping in view the growth of population and lot of wealth available in the rural Pakistan.

The adviser to PM, along with Umer Ayub Khan, Minister of State for Finance, was on a visit to the Karachi Stock Exchange on Saturday where he held meeting with the board of directors and prominent members of the exchange.

A press release issued by the KSE said that Dr Salman observed that the stock valuations were still very attractive. He suggested that KSE should redouble its efforts to expand investors' base from the current two million to five million. He also suggested development of new instruments for investment and expansion of mutual fund industry, including venture capital fund, to satisfy investors' appetite.

"Similarly efforts should be made to attract foreign investors to our market." He assured that all necessary efforts would be made for listing of government-owned companies. But at the same time he encouraged the KSE to make efforts for listing of private firms.

Speaking on the occasion, Omer Ayub Khan highlighted the benefits of the research and analysis for the development of the equity market. He also discussed interaction of equity analysts with listed companies and said that a competent industry can be built upon it. He said that equity market should provide such an environment to the listed companies that they might grow and go on to be listed globally. Mr Khan said the government was taking all steps to provide an environment conducive for investment and capital formation and that the doors were always open for solving genuine problems and implementing good suggestions.

Dr Shah maintained that the country's economy was on a sound footing. Crops are good including an impressive growth of cotton crop. Similarly, the industrial sector expansion was going on, while the private sector credit demand was increasing by a factor of two every year. He said that foreign exchange reserves were strong and the central bank would continue to monitor the exchange regime.

Dr Shah also referred to the increasing oil prices and said the country was looking at other avenues whereby the shortfall against petroleum levy could be offset by higher customs/sale tax collection by the CBR. Similarly, the monetary policy is also under constant review by the SBP and there was no need for concern.

Earlier, KSE Chairman Arif Habib made a presentation about the growth and development of the KSE during the last three years in terms of number of listed companies, market capitalization and average daily turnover. He said the KSE was the most active market of the world, which was reflected by the fact that its daily turnover was about 1.2 per cent of the market capitalization as against the international benchmark of 0.4 per cent.

The KSE 100-share index had shot up by over 335 per cent in the last three years and as a result the KSE had been declared the "Best performing market of the world in 2002". He pointed out that the major beneficiary of this turnaround was the government of Pakistan that held 50 per cent of the market capitalization. He also briefed about the impact of government disinvestments in the shares of OGDCL and Pakistan Petroleum Limited, which had helped tremendously in enhancing the number of shareholders to about two million.

The KSE chairman observed that those achievements were due to government's positive economic policies which needed to be continued in future. He appreciated government's decision of listings of Kapco, UBL and some other government enterprises which, he said, would help in increasing the size of market and make it comparable with international benchmark.

The KSE chairman proposed a number of measures for the development of equity market in the country which inter alia included: 1) All those companies which are controlled/managed by the government should be listed on stock exchanges which would add to market capitalization; 2) Until June 2002, there was a tax rebate of 10 per cent for listed companies. Unlisted Companies were subject to income tax rate of 45 per cent whereas listed companies 35 per cent. In the budget of 2002-03, the government decided to reduce tax rate on unlisted companies by two per cent every year, bringing it on a par with listed companies by the financial year beginning July 2006, leaving no tax incentive for listed companies. Tax incentive should be restored; and 3) Tax rate on dividend from unlisted companies and listed companies have become same at 10 per cent, again providing no advantage to the listed companies. Until June 2002, tax rate on dividend from unlisted companies was 20pc.

The KSE chairman further stated that the performance of stock market during the last quarter had been affected due to CVT levy, phasing out of COT, etc., but subsequently responded positively to various factors, including better corporate announcements. However, he said that due to the government's positive policy there were good prospects for investments in the equity market.

Salim Chamdia, Chairman, National Commodity Exchange Limited (NCEL), also briefed about the progress made in the commencement of operations and said that the infrastructure was ready and the NCEL would initially start trading in the financial derivatives and gold.

He said that on the occasion of Top Companies Awards distribution ceremony to be held in the first week of December next, the KSE would launch an internet trading, which would help in broad-basing the equity investments as well as enhancing the number of retail investors from remote areas. In conclusion, the KSE MD again stressed the need for restoring tax difference status of listed and non-listed companies, which he urged, should be accorded top priority in the next budget.