The stock market has lost a third of the value of share prices since May 2017. The benchmark index touched its three-year low last week, wiping out a staggering Rs3 trillion from the market.

Desperation is in the air for small investors who dabbled in second- and third-tier stocks. They have been deprived of three-quarters of their savings. Yet no floor is in sight. As reports over the country’s economic malaise pour in, stocks continue to sink deeper.

For a quick reference, here are market prices of some of the randomly selected stocks. The value of Pioneer Cement has receded to Rs29 a share from Rs71 a year ago. DGK Cement has sunk from Rs165 a share to Rs75. International Steels is down from Rs122 a share to Rs61. Lucky Cement declined from Rs702 a share to Rs369. Pak Elektron has dived from Rs49 a share to Rs21.

Voices are growing louder as investors clamour and plead for a bailout by the government. The argument is that state-owned institutions — such as State Life, EOBI, NIT and National Bank that are sitting on piles of cash — should rescue the market by buying stocks that are now available at dirt-cheap valuations.

Investors say SOEs like State Life, EOBI, NIT and National Bank should rescue the stock market by buying stocks that are now available at dirt-cheap valuations

“The government must intervene and prod such institutions to enter the market,” said one investor, adding that the same institutions are waiting like vultures for more blood on the street before they pick up stocks. Impartial market watchers believe, however, that no institution can be coerced into buying just to bail out the market.

Word has it that there was some discussion on the subject at the Securities and Exchange Commission Policy Board in Islamabad last week. According to its chairman Khalid Mirza, he would ‘personally’ like to see an instrument in place for the stabilisation of the market. He said a stabilisation fund set up through contributions from financial institutions, mutual funds and the government could prove useful as a permanent regulatory instrument. “It ought to be operated by disciplined, impartial people, not fund managers who trade on emotions,” he asserted.

The last bailout fund was set up during the market meltdown of 2008 to arrest the fall in stock prices, which plunged by almost 55 per cent in four months. A government-guaranteed Stock Market Support Fund of Rs20 billion was set up under the management of NIT on Jan 13, 2008. It invested in the shares of eight government-owned enterprises listed on the stock market: OGDC, PSO, PPL, Sui Southern, Sui Northern, PTCL, National Bank and Kapco. The move provided the sinking market with stability. National Bank had contributed Rs7bn, EOBI Rs5bn and State Life Rs2.5bn. A consortium of banks extended the remaining Rs5.5bn.

The financing institutions lent money to NIT at the interest rate of Kibor plus 1pc. The chairman of NIT at the time, Tariq Iqbal Khan, told Dawn on April 11 that no institution is mandated under any law to bail out the market. “The paramount condition for any management would be to safeguard the interests of its own investors,” he said.

He added that certain functions carried out by NIT under his tenure during the 2005 and 2008 market crashes were prompted by the same principle. “We believed that in order to protect our own investors, NIT should enter the market and pick up stocks available at attractive valuations. Consequently, it provided the market with stability. Mr Khan recalled that the Rs20bn fund eventually proved profitable for all stakeholders, including the government that earned Rs16bn.

A former chairman of the Pakistan Stock Exchange (PSX), Arif Habib, did not seem too distressed over the current market meltdown. He emphasised that the PSX was capable of riding out the challenge. “Latest figures of the current account deficit show a big relief in the major problem that triggered the market plunge,” he said.

He also pointed to other indicators, like remittances and foreign exchange reserves, which are getting better. “Regardless of the market performance, most sectors, such as textile, fertiliser, refineries, oil and gas exploration, are doing well. That will be reflected in their upcoming quarterly results,” he said. He added that cement, steel and auto stocks may face a hard time in the short run.

He refrained from calling for a bailout. He complained that government-controlled institutions take minimal interest in trading in a bear market, but are quick to buy when the market bottoms out for the fear of missing out.

Published in Dawn, The Business and Finance Weekly, April 15th, 2019