FOR individuals with small means, the stock market is scarcely a place to make big fortunes. Anyone who might be over-awed by the spectacular rise in the KSE-100 index, which is now close to 18,700 points, is all but misled.

While the benchmark has risen from the ashes of 2008 when all that remained was 4,800 points, yet the galloping benchmark is scarcely a sign of enormous market gains.

In real terms, the bourse is only half way to its peak of before the 2008 crash. In April of that year, the aggregate market value of all 651 listed companies, or market capitalisation, stood at a lofty height of $70 billion. Following the great erosion, the market capitalisation has now managed to crawl up to only $47 billion. And for all its glitter, what are the returns on equities?

On March 17, 2008, the benchmark KSE-100 index stood at 15,043 points. Five years on, the index has reached 18,700 points, representing a cumulative return of just 24 per cent, which many believe to be the lowest in a five-year term in the bourse’s history. “Any investor who may have opted for other avenues like gold, currency, property or even National Saving Schemes (NSS), would have fared better,” grumbles a stock investor.

Returns at the share market would have been worse, however, if it were not for the 42 per cent gains recorded in 2012, thanks to the government conceding to the demand by market participants and regulators to restrain tax authorities from ‘asking questions on source of funds to be invested in stocks until June 2014’. Most people suspect, but no one can quantify the amount of money that may have been diverted from the ‘informal’ sector, and laundered through the stock market.

But for all that, the public is curious as to how many people make how much money in stock trading, and where does all of that go.

Retail, or small investors, who had burnt their fingers in the crash of 2008, have yet to muster courage to strike the road leading to the KSE. Fortune-seeking day traders almost always end up losing their capital. For slightly long-term retail investors, the return, in terms of a dividend yield of 6.7 per cent that the equity market offers, provides the means for their daily bread and butter.

Yet there are stock brokers who have turned from rags to riches. Once a sleepy capital market, the KSE awoke in the early nineties as the government threw open its doors to foreign investors. Stock prices skyrocketed, and the easy going, pan chewing, pajama-clad stock brokers began donning designer suits and discarded their one-room rickety offices, shifting to vast spans of well-equipped buildings, eager to make themselves presentable to their visiting foreign clients.

The gains that accrued in those heydays made the first billionaire from stock trading. One such enterprising broker told this scribe that he had started out in 1985 by investing all he had in stocks: Rs37,000. Lady luck smiled on him, however, and he has now diversified the staggering amount of his wealth into almost all imaginable and lucrative fields like banking, sugar, cement, fertiliser, textiles and real estate. “You name it, I have it,” he said in a jovial mood, before conceding that he was at a loss to figure out the billions in wealth he commanded under his vast conglomerates.

But such people can be counted on the finger tips of one hand.

Some market participants believe that as property prices are on the rise, high net worth individuals are putting a fourth of their wealth into real estate. But since the property business is shrouded in mystery, it is difficult to follow the money trail and work out how much of the capital and profit from investment in stocks is flowing into real estate.

Zubair Ghulam Hussain, head of equity sales at Foundation Securities, observes that the stock market rally, in great measure, has been led by foreign fund managers. Foreign portfolio inflow from January 2013 to date stands at a huge $88 million. Foreign funds are usually long-term investors, and therefore often earn both capital gains and income from dividends. In the absence of any curbs, foreigners repatriate earnings to their home countries.

Institutional investors mostly add dividends to their earnings and buffer their surplus. When the going is good, institutions and high net worth individuals prefer to plough back their earnings from the equity market back into other fundamentally attractive stocks. In uncertain times, however, corporates prefer to sit on mountains of cash on their balance sheets.

And to the chagrin of private sector borrowers, banks have preferred to seek the safety of T-Bills, where risk-free returns are much higher. But all of this can now be changing. In the declining interest rate scenario, stocks are the investment of choice.

Already in the last 16 months, the State Bank of Pakistan has slashed the discount rate by as much as 400 basis points.

Zulqarnain Khan, director at Next Capital brokerage, argues that in the last three months, big banks and development financial institutions (DFIs) are pulling out of T-Bills, and allocating larger funds to equities. Despite posting a return of 10 per cent in 2013 year-to-date, the local equity market is currently trading at 2013 price-to-earnings multiple (p/e) of 7.3 times, which compares favourably with the average p/e over the last 10 years of 8.5 times.

Yet globally, investment in equities is thought to be both ‘hot money’ as well as a ‘high risk investment’. Returns on fixed investments are prone to quick changes, and bank deposits and NSS offer a pittance. Under these circumstances, more and more big brokerages and groups are now providing investors with an opportunity of exposure in international trading in commodities.

“Did you know that the annual five-year returns in gold, silver and crude oil have exceeded 33 per cent, 30 per cent and 18 per cent respectively in rupee terms, surpassing returns in government bonds, stocks and National Savings Schemes,” asks a brochure of a big local brokerage trying to attract money from the equity market and into trading in commodities.