January 18, 2007	Thursday	Zilhaj 27, 1427

KARACHI, Jan 17: The healthy increase of 25 per cent in inflow of remittances during the half year ended July-December 2006, reported by the State Bank of Pakistan, on Tuesday, compared to the corresponding six months of the previous fiscal year has brought cheer to the markets that have traditionally been recipients of the foreign dollar flow.

But the real-estate and the stock market, this time around have competitors: commercial banks and the National Savings Schemes (NSS). The quantum of remittances for six months has been mentioned at US$2,568 million, compared to US$2,055 million in the same time last year.

Converted into rupees, the increase of 25 per cent would work out to over Rs30 billion or Rs5 billion a month.Stock brokers, like all shopkeepers, are unlikely to agree that the business is going good. But the fact is, it is. An indication of how well the capital markets have performed in the last six months could be the 1000 points jump in KSE-100 index, from 9604 on first trading day of July 2006 to 10,615 at the closing on Wednesday, Jan 17. That produces a yield of six per cent. During this timeframe, volume of daily trade has climbed from 122 million shares to 223 million shares. Before the brokers scream foul, it has to be conceded that there are good days as well as bad, when the volume is very thin.

The six per cent yield has to be seen as quite impressive when compared to the penny-pinching returns handed out by commercial banks to its clients. But the fact that the banks have been enjoying higher spreads is one reason for the phenomenal growth in their profitability. And investors in stocks too have reaped the benefits. Stocks of bigger banks, such as National Bank of Pakistan (NBP) which was trading at Rs206 on July 1 is now tagged at Rs258; MCB share has also climbed steeply from Rs204 to Rs269 — both representing increase of around 30 per cent in six months. And smaller banks have hardly lagged far behind. The value of Bank of Punjab at Rs80 per share on July 3, is now Rs108. Other shares in most other active sectors have shown growth.

In telecom, the giant PTCL’s stock price has risen from Rs39 to Rs52. Many market gurus believe that the party is not yet over for the foreign funds are coming in droves; the stock multiples are low; yields are high and the local investor is yet to step in, after having nursed the wounds of March 2005 stock crisis.

When the country last received big chunks of dollar inflows late last year and before, most of it was understood to have drifted into the real estate sector that showed staggering rise in prices of land and apartments. Pots of rupees could hardly secure a small plot of land. “Real estate market has cooled down a little”, says Mehboob Jiwraj of Sameer Estate Agency, which operates in both upmarket and backyard of the city. Another property dealer conceded that the prices had actually drifted down by 10-15 per cent. But what is that from the phenomenal increase of 100 to 200 per cent in prices in the preceding two year period? The figure of remittances for the six months under review showed that inflow from USA, UK, Switzerland and EU states had increased and so also from the Saudi Arabia, UAE and GCC countries.

Market watchers believe that much of such investment tends to flow in long-term investments, such as the real estate. A little concerned with the situation in the election year, investors seem to be opting to keep their funds fluid.

But while bigger commercial banks have been offering dismal rate of return, despite the urgings of a raise by the Central Bank, the smaller banks are competing in an effort to give more, some times in double digits. It will be a little while before balance sheets of such smaller banks come into public view to assess if the depositors’ have reposed confidence and preferred higher returns over small concerns.

The government guaranteed National Savings Schemes (NSS) is believed to be a big recipient of both local and overseas workers’ remittances, for the security and comparatively higher returns. The government was slated to raise rates of returns on NSS on Jan 1.

Analysts hold almost a consensus view that the rates would be revised by 0.5 per cent, which some say could come as early as next week.