KARACHI, Oct 11: Ten million people trade on the Mumbai Stock Exchange, the number quickly multiplying from four million five years ago.
A recent visitor to the Dalal Street said that he did not see such surge of interest in equity trading at our bourse, which is currently at the height of its bull run.
The Central Depository Company (CDC) maintains fewer than 45,000 accounts. Giving a fair margin for multiple investors trading through sub-accounts, the number of retail investor might be fairly higher than that. But how high is a question that is arguable?
Some of the stock brokers place the investor numbers between 1.5 and 2.0 million, deriving the figure by adding together total number of shareholders listed in the annual reports of all 657 quoted companies taken together. Since many shareholders would have stakes in more than one companies, that calculation is doubtless faulty. But for all that, conservative estimates by knowledgeable equity analysts indicate that retail investor base in Pakistani stocks couldn’t be more than 210,000. That comes to less than 0.1 per cent or one in a thousand, of the country’s population of 170 million people.
The last two months have witnessed the Karachi Stock Exchange Index soar past its all-time highs.
As more and more foreign and local investors keep pumping cash into the market, the staggering rise in equity values leaves the participants gasping for breath. The surge of 2,400 points in KSE-100 index in less than two months has multiplied the total wealth of the deep pocket individuals and institutions.
“But because of low retail-investor base, the benefit of market boom is not known to have unleashed a wave of prosperity among ordinary urban class that such increase in corporate earnings and their share values bring as a rule, in more developed world,” conceded an analyst.
However, the gradual growth in volume of shares traded shows that retail investors might be flocking back to the market. Even those who burnt their fingers in the great crash of March 2005 are casting at least one eye on the stocks anew. For spare cash, there is nowhere to go. The Return on Equity (ROE) this year has been a mouth watering 40 per cent.
Most small savers, who have their household savings parked away in the banks’ vaults or National Savings Schemes realise that by contrast banks and NSCs are offering pittance in return.
Retail investors in equity markets, have doubtless, suffered losses in the past. But for that, in most part, they have themselves to blame.
Instead of research-based investing, small investors relied solely on rumours and followed the footsteps of big brokers.
“There is a need to expand retail investor base so that more and more people can share the fruits of a run away market,” says a market participant. But where there is high return, there is also the high risk in equity investment. Unless able to do a thorough research themselves, market gurus advise retail investors to enter via the mutual funds, which are more professionally managed.
“It is essential to create awareness among the small savers,” says the chairman CDC Mr Hanif Jakhura.
Retail investors need also to be attracted from smaller towns and cities and maybe, even the countryside.
Mr Jakhura mentions that the CDC has on its part held roadshows in and outside the country to introduce the Pakistani capital markets to the public.
Such roadshows in the country have been held in Hyderabad, Sukkur, Sialkot, Multan, Quetta and Peshawar.
Other market participants suggest that on-line trading must be vigorously perused. Banks have recently been known to deny opening of accounts for share trading and the Central Bank must reprimand such banks and their far away branches.
Moreover, The government must divest its holding in healthy and profitable entities through Initial Public Offerings (IPO). The latest issue of Habib Bank Limited has brought huge windfall gains to small savers. Nothing could be more alluring to retail investors than such high-return equity offerings.