No fewer than fourteen companies have recently entered the country's capital market. That marks a giant leap forward, when compared with just about 15 companies that sought to mobilize funds from equity offerings in the past four years, combined.

A handful of companies that have come forward now are those that have made equity offers to add to their already listed capital. But others are new companies that have asked investors for cash in Initial Public Offerings (IPOs).

During the fiscal year 2004, all new IPOs combined had raised a sum of Rs 14.1 billion. Investors have displayed enormous appetite for fresh stocks. All except two of the 13 IPOs floated during the last fiscal year, were oversubscribed.

It is difficult to judge whether in deciding to buy or not to buy those stocks, investors have made intelligent, informed decisions and sifted good from bad and viable from unviable projects. Around half of the companies listed in the previous financial year were green field projects.

Some of the latest new listings at the Karachi Stock Exchange include: TRG Pakistan; WordldCall Broadband; PICT; National Bank of Pakistan (additional offer); Sui Southern Gas Company Limited (additional offer); Macpak Films; Callmate Telips; Southern Networks; PIA (additional offer); Oil and Gas Development Company (OGDC); Bank Alfalah and the Pakistan Petroleum Limited (PPL).

The Privatization Commission has quite rightly seized the opportunity. And in doing so, it has done a tremendously good job of giving big boost to both the listed capital and the number of new small investors. A couple of years ago, the number of retail investors in Pakistan was no more than 50,000.

Reasons for small retail investor base were easy to identify: low literacy rate, lack of desired infrastructure, under-development level of automation and a hitherto negative perception about the capital market.

That was a pity, for just across in Mumbai, if one were to peep into a house in the evening, housewives could be seen pouring over newspapers looking for the price of Hindustan Levers or Reliance Industries or Tata Steel and others and arguing how high or low the stock would go the next day.

The divestment of 5 per cent equity by the government from its fully-controlled Oil and Gas Development Company Limited (OGDC)-the largest oil and gas exploration company in Pakistan- fuelled small investors' interest in equity investment in Pakistan. That went to double the number of retail investors from 50,000 to 100,000. And that was just the beginning.

The huge gain of 100 per cent that investors in OGDC reaped in a few months sent the word around that the government had started some sort of a 'lottery' scheme where money doubled in six months.

That sent soaring the number of subscribers in each of the new offerings by the Privatization Commission. At the balloting ceremony to determine successful applicants for minimum lots of 500 shares in Pakistan Petroleum Limited (PPL) a week ago, the Minister for Privatisation and Investment, Dr.Abdul Hafeez Sheikh, put the number of share owners in Pakistan to 470,000, which he said had grown from 70,000 in the last two years.

The government's offer of 15 per cent shares in PPL also attracted the highest ever number of people to run for the stocks. More than 757,000 applicants subscribed for some 205,000 applications that the government had sought.

But the Privatization Commission has also taken advantage of the investors' indiscretion. It put up for sale, shares in Pakistan International Airlines (PIA) for Rs 20 a piece; the stock was trading at Rs 22 at the time.

The offer was oversubscribed. But even before the balloting to determine successful subscribers, the share price receded to Rs 18. Applicants, who would fervently pray for success at PPL later on, now did otherwise. But the Commission thought it unkindly to reject any applicant and all who had asked for shares in PIA were accommodated!

All that represents the fact that there is tremendous appetite for new stock offerings. Due to the phenomenal rise in equity values, the Pakistani market that was worth the size of an insignificant US dollars 5 billion just about two years ago has now scaled up to US dollars 24 billion.

In Rupee terms, the paper value of corporate Pakistan has multiplied from Rs 296 billion on January 1, 2002 to an incredible Rs 1.4 trillion currently. A combination of economic reforms; corporate reforms and capital market reforms have given fresh new look to Pakistan's stock market, which a little while ago was considered to be one of the most manipulated markets in the region.

The KSE has perhaps managed to shed some of that negative image and win investor confidence. Efforts are being noticeably made to strike a healthy balance between the interests of all three stake holders in equities: the members of KSE, the listed companies or issuers of capital and the investors.

With surplus liquidity, investors turn to the stock markets also in search of higher gains. The market still offers 10 per cent yield, compared with low interest rates on bank deposits and on once popular national saving schemes (NSSs).

Yet considering the relentless rise in stock prices, which still goes on, there should have been a bee-line of companies wanting to enter the capital market to raise funds.

Although some of the finest companies and mutual funds are in the pipeline, there is general lack of enthusiasm from sponsors. In the financial year 2004, when comparatively a large number of more than two dozen companies sought listings at the stock market, the number of new registered companies was no less than 2,208.

Also 1,553 companies were born in the previous year and 1,183 companies in the year preceding that. Number of companies listed at the KSE is just about 663, while private companies in Pakistan are more than 40,000. So what makes those companies shy away from the market?

There could be many reasons. The 'seth' mentality, where the sponsor family does not wish to see an outsider sitting alongside on the Board; the advantage of not having to get accounts audited and to avoid the small shareholders' nuisance at the Annual general meetings, may be counted as some.

But there are other reasons as well. Regulators have made tough new rules for listed companies. The SECP has made mandatory for companies to follow Code of Corporate Governance; companies must comply with International Accounting Standards (IAS) and also issue quarterly financial reports.

And what advantage do stock market quoted companies get in return? Hardly much. Although the KSE has reduced its listing fees by as much as 40 per cent, companies have not been lured into seeking listings.

The major reason being non-availability of tax incentives for listed companies as was in the past. The bourse has asked for a gradual reduction in corporate tax on listed companies, but to no avail.

In the federal budget 2004-05, the government announced exemption of tax on capital gains for another two years-till 2007. But several other demands went unnoticed. The bourse had been pleading for a reduction in withholding tax on dividends which it sees as double taxation.

Their reasoning being that since companies already pay tax on profits and distribute dividends from after tax profits, taxing dividends tant amounts to double taxation. Individuals, who pay 10 per cent withholding tax have to bear the brunt.

But for all that, hope is still in the air that more and more companies would turn to the stock market. A string of equity offerings by the government, including that of Kot Addu Power Plant (KAPCO) in September and continuing interest of investors would hopefully attract more new private listings.

The start of Over-the-counter (OTC) market would also provide opportunity to small cap companies to seek listings. The government, nonetheless, needs to rethink its strategy and give some more breathing space to listed companies. It can never be too bad to see a broadened equity base- both in terms of listed capital and number of people who own company shares.