May 18, 2008	Sunday	Jamadi-ul-Awwal 12, 1429

Karachi, May 17: Gloom seems to have settled on the country’s capital market during the current year. The number of companies listed on the Karachi Stock Exchange have stood unchanged at 654 since the start of the year.

“I know of no listed companies (except perhaps for Arif Habib Bank and Thatta Cement, the listing process for which had started last year) which may have entered the bourse during the first five months of the current year,” says a stock market participant, admitting that it was unusual, but not quite unexpected.

Last year, the market was swamped with as many as eleven Initial Public Offerings. Analysts said there was no incentive for the unlisted companies to step into the stock exchange.

The corporate tax rate, if lower for quoted companies, could have been one big reason, but that remains at 35 per cent for both listed as well as unlisted corporate entities.

“Indeed some of the companies have sought de-listing, so as to escape the hassle of strict compliance with the code of corporate governance,” says a stock strategist.

Drawing and filing up quarterly accounts and all sorts of statements is a headache in itself, while the directors have to restrain themselves in the face of investors’ criticism, which sometimes turns to abuse at the shareholders meetings.

In the absence of new entrants, the corporate sector is nonetheless abuzz with activity of another kind. Companies have continued to capitalise profits by the issue of bonus shares and ask shareholders for cash in right issues. The total listed capital has thus increased from Rs671 billion at Dec 31, 2007 to Rs695 billion on May 12.

Corporate restructuring has also been more pronounced in the recent years. Merger and acquisition activities, particularly in the banking sector, have been going through where financial institutions have been presented with limited options, either to merge or fade away in the face of higher capital requirements by the regulators.

The KSE-100 index stood at 14,075 at the start of the year and went on to climb above 15,500 levels, giving investors a return of 4.4 per cent till April 15.

But the recent meltdown of the market has trimmed the gain to just around 1 per cent with the index at 14,233 on Friday and still looking down.

Market pundits espouse countless reasons, explaining why bears managed to overpower the bulls. Will the market rebound from here?

An old timer at the KSE held out his hand and counted ten reasons on the fingertips, which he said had tossed the market into tailspin.

Those included: political uncertainty; dim economic picture; rupee devaluation; rising crude prices; the judges case; soaring inflation; dismal corporate earnings in 1Q08; militancy and law and order problems; S&P downgrading and the concern whether or not capital gains tax would be imposed in the upcoming budget.

“How long do you think it would take to settle those issues?” he asked. The veteran did admit that the market had shown resilience to terror attacks and some other depressing issues, but he thought that now the factor of fear was fast overtaking that of greed. In particular the foreign investors are believed to be moving out in droves.

Figures posted on the National Clearing Company website, shows that converted at Rs68.50 to a dollar, foreign investors withdrew nearly half a million dollars from portfolio investment on May 16 alone.

The KSE had given investors an enviable return of 40 per cent in 2007, which made the sixth of a consecutive bull run. In the five years prior to that (2002-05), the market had yielded an average of an incredible 55 per cent return. Investors wonder if the market could yet take a turnaround and maintain that trend of earnings disbursement for the balance of the current year.