Defined as the first sale of stock to the public, an initial public offering (IPO) helps a company raise funds through the stock exchange.

“We have a number of listings coming up this year. They are in the power, technology and engineering, real estate and construction, packaging, and oil marketing and distribution sectors,” Naqvi said. “They are reasonably sized IPOs of between Rs250 million and Rs1 billion,” he added.

The number of IPOs on the Karachi bourse has declined in recent years. There were only three IPOs in 2012, namely, Next Capital, TPL Trakker and Aisha Steel Mills. According to the KSE website, the only company to get listed in 2013 so far is SFL Limited. However, it has been listed without a public offering – meaning no IPO – after the demerger of Sapphire Fibres Limited under special arrangements sanctioned by the Sindh High Court. There were only four IPOs in 2011, five in 2010, three in 2009, 10 in 2008, nine in 2007, five in 2006 and 14 in 2005.

Naqvi says the reason for the declining number of IPOs is poor economic conditions in recent years, as fewer companies considered it viable to raise capital through a public offering. “There’s also pressure from the (KSE) board to increase the number of IPOs because it creates depth in a stock market. We joined the International Monetary Fund programme after the 2008 crisis. Our industrial growth suffered and there was no appetite for investment, which resulted in fewer IPOs,” Naqvi stated. He added that the declining trend in IPOs is not Pakistan-specific. Rather, it is a global phenomenon, he said.

According to Bloomberg, a financial news service, the number of IPOs in 2012 slumped to the lowest level since the financial crisis, as signs of economic slowdown curbed demand and prompted companies to push back sales. In its report reviewing IPOs in 2012, Bloomberg said concerns about China’s economy helped cut proceeds in Asia by almost half. “The annual global IPO tally declined for a second straight year… In Asia, the biggest region for IPOs, proceeds fell 43% to $46.7 billion,” it said.

Besides overall poor economic conditions, the establishment of a more stringent regulatory framework through a number of initiatives, most recently in the shape of a corporate governance code, played an important role in scaring away at least a few companies that wished to go public. “Although I’m strongly in favour of stringent regulations, the fact is that better regulations scared some people,” the KSE MD said.

According to Ernst and Young (E&Y), a financial consultancy firm, the Asian IPO market is off to a slow start in 2013. Based on data from the first quarter, E&Y estimated that the slow start was because of a halt in listings on Chinese exchanges since November 2012.

Naqvi says tax rates in Pakistan are also skewed towards non-listed entities, which discourage companies from going public. “Publicly listed companies should be taxed at a rate lower than the rate of non-listed companies,” Naqvi said. The current corporate tax rate for both listed and non-listed companies in Pakistan is 35%.

Published in The Express Tribune, May 26^th, 2013.

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Pakistan is home to approximately 120 million people below 30 years of age. According to a 2009 Unesco report, there are 18 colleges of technology, 54 polytechnic institutes (11 for females) and 25 mono-technic institutes in the country that offered three-year diploma courses in over 30 technologies. Moreover, there were 409 other vocational institutes operating in the country, which offered courses of a shorter duration in over 40 skills/trades.

“Our estimate is that there are 64 technicians per one million people in Pakistan. In developed countries, the average is well above 1,500 technicians per one million people,” says Ahsan Jamil, CEO of the Aman Foundation.

The Aman Foundation was set up in 2008 with a donation of $100 million by Arif Naqvi, founder of the UAE-based private equity firm Abraaj Capital, and considered by many a global icon in the field of private equity. The Foundation runs AmanTech, a Karachi-based vocational training initiative aimed at aligning the labour force with the expectations of the private sector, both locally and internationally.

“Currently, 25,000 students are enrolled in vocational training institutes across Pakistan. Ideally, the number should have been around four million. In fact, it should be even higher, given the low level of automation in Pakistan’s industrial sector,” Jamil said while explaining Pakistan’s standing in vocational training initiatives to The Express Tribune.

AmanTech has partnered with specialist international vocational organisations, such as Germany’s GIZ and UK’s City & Guilds, whose certifications are internationally recognised. Two years after it was launched, the institute has enrolled around 2,300 students. The first-year cohort consisted of 430 students, of whom 372 passed the City & Guilds exams, which translates into a pass rate of 86%. For those who cleared the City & Guilds exams, the placement rate was 67%, with about one-third of the graduates getting jobs overseas. “Overseas placement will go up for future batches as we establish stronger contacts with employers in the Middle East,” Jamil claimed.

Education and the City & Guilds exam fees are subsidised at AmanTech, as students have to pay only Rs1,000 per month in fees while they study at a vast, purpose-built campus that incorporates state-of-the-art workshops. AmanTech offers one-year diplomas in as many as nine trades.

“This organisation is run by business-minded people. We have been trusted with philanthropic money, and that means we cannot afford to waste a single rupee,” Jamil explains. Out of the organisation’s total annual expenses, 14% come under the head of indirect costs such as salaries, administrative expenses etc. Direct costs, or ‘programmatic costs’, account for 86% of total annual expenses. “Indirect costs are going to go down to single digits in the next three years, as we expand our operations further,” he said.

Jamil says the foundation has been investing the $100 million seed money donated by Naqvi in scalable, social businesses. “We have invested $40 million so far,” he said.

“We aim to produce high-quality labour in high-need areas. We’re working on the supply side, knowing that demand will follow,” Jamil explained

Around seven million Pakistanis are working overseas, with almost 90% of recent emigrants going to the Middle East, according to Bureau of Emigration (BoE )Assistant Director Farrukh Jamal. Between 35% and 45% of them can be categorised as unskilled labour. Data from BoE shows that 49,885 people moved abroad for work in 2011 through BoE-certified overseas employment providers, up 26.3% compared to 2010.

Published in The Express Tribune, May 24^th, 2013.

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The latest centre of caretakers’ attention is Pakistan Reinsurance Company (PRC) – the country’s sole reinsurance company – where the government has appointed Shoaib Mir Memon as chief executive officer (CEO).

Like a number of private and public-sector companies, the chairman of PRC also held the position of CEO until now. However, PRC is governed under the listed companies’ Code of Corporate Governance 2012 issued by the Securities and Exchange Commission of Pakistan (SECP), which clearly lays down the procedure for the appointment of a CEO.

The separation of CEO and chairman and the election of chairman from non-executive directors must take place at the time of the next election of directors, according to the Code of Governance. The next election of PRC is due to be held on December 31 this year.

Furthermore, as per a statutory regulatory order issued by the Ministry of Finance on March 8 regarding the Rules for Corporate Governance in Public-Sector Companies 2013, the appointment of CEO must be done through a specific procedure, which has not been followed in the case of PRC’s CEO.

“The board shall evaluate the candidates based on the fit and proper criteria and the guidelines specified by the commission for appointment to the position of chief executive, and recommend at least three individuals to the government for appointment as chief executive of the public-sector company,” the SRO said.

It also stated explicitly that the board, and not the government, will appoint the chief executive in a public-sector company.

Many important state-owned enterprises have seen executive postings and transfers after May 11, including the National Highway Authority, National Electric Power Regulatory Authority, Sui Southern Gas Company, Sui Northern Gas Pipelines, Pakistan Mineral Development Corporation, National Fertilizers, Oil and Gas Development Company, State Life Insurance Corporation, Pakistan Tourism Development Corporation, Software Export Board and Federal Investigation Agency.

Memon is a life-long civil servant who has served as an executive director on the board of State Life for many years.

Published in The Express Tribune, May 21^st, 2013.

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According to the International Monetary Fund (IMF), the number of deposit accounts with commercial banks per 1,000 adults in Pakistan is 282.6. The comparable figure for India is 953. No wonder then that a large number of cash-based transactions led to the dismally low tax-to-gross domestic product (GDP) ratio of 9.3% in 2011, lowest in the region, according to the World Bank.

Based on data from Asian Development Bank and Federal Board of Revenue, and Tax Justice Revenue, Bloomberg Businessweek estimates that the size of Pakistan’s shadow economy is 36% – or roughly $76 billion – of its 2011 GDP.

‘Fiscal’ inclusion    

“Contrary to what international financial institutions suggest in their studies, I believe the extent of financial inclusion in Pakistan is quite high, at least in urban areas,” said Shabbar Zaidi, who serves as partner at AF Ferguson and Company, a leading auditing firm associated with PricewaterhouseCoopers, a global name in consulting services.

“There are between 20 and 30 million bank accounts in Pakistan, but the number of income tax-paying people is about two million only. That means we have a problem of fiscal inclusion, not financial inclusion, as a significant number of Pakistani households already maintain at least one bank account,” Zaidi added.

According to the World Bank’s Financial Inclusion Database 2012, only 10.3% Pakistanis aged 15 years or more have an account at a formal financial institution compared to the global average of 50.5%. The comparable figure for all South Asian economies – Afghanistan, Bangladesh, India, Nepal and Sri Lanka – is 33%.

As for Pakistan’s female population aged 15 years or more, only 3% of them maintain an account at a formal financial institution as opposed to all South Asian economies where the figure stands at a much higher 25%.

Quick fix?

Zaidi says the easiest way to curtail the size of the undocumented economy is by turning national identity card numbers into national tax numbers. Moreover, the government should make it mandatory for everyone to file annual tax returns without any exemption, he adds.

“Before anything else, we need to bring those 20 to 30 million bank account holders into the tax net, which will significantly enhance the level of documentation in the economy,” he said.

Analysts believe that the composition of Pakistan’s GDP is such that the documentation of wealth is easy to avoid, especially in sectors that remain largely untaxed. For example, the agriculture sector employs 45% of Pakistan’s total workforce with a 23% share in the GDP, and yet its contribution to tax revenues is roughly 1%. Same is the case with retail, transportation and services sectors that includes lawyers and doctors who, according to Zaidi, grossly understate their wealth and contribute to the shadow economy.

Published in The Express Tribune, May 20^th, 2013.

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The latest brokerage house to bite the dust is ZHV Securities. According to a KSE notice issued on May 14, the KSE board of directors has forfeited the Trading Right Entitlement Certificate (TREC) of ZHV Securities because of the brokerage house’s “inability to resolve admitted investors’ complaints/claims arising out of trades/transactions, registered with the KSE, due to financial precariousness.”

In a default case like this, creditors are exposed to the risk of losing their money, even though the KSE management has explicitly said in its notice that the forfeiture will not affect the rights of the company’s creditors. According to the KSE, ZHV Securities remains responsible for discharging all its financial obligations.

Under existing investor protection rules, in the case of default all claims are paid from the sale proceeds of assets of the broker under control of the exchange. Those claims that remain unsatisfied after the sale are then paid from the Investor Protection Fund up to an aggregate amount of Rs75 million.

“Before KSE’s demutualisation, the defaulter’s seat would be sold to raise money to meet its financial obligations. But now there is no seat, and all the exchange has got is the broker’s TRE certificate and shares in the KSE,” KSE Managing Director Nadeem Naqvi said while speaking to The Express Tribune.

As per existing regulations, each broker is required to maintain a minimum base capital of roughly Rs31 million, which is the estimated value of a TREC, and its shareholding in the exchange. This is a notional value that the Securities and Exchange Commission of Pakistan (SECP) and the KSE board came up with, and is based on the book value of KSE shares post-demutualisation.

Hence, if claims exceed the amount of minimum base capital and broker’s assets, the KSE is expected to meet the gap through the Investor Protection Fund. However, the problem is that the Investor Protection Fund, which used to have Rs1 billion before the 2008 crisis, has now shrunk to approximately Rs500 million. This leaves the exchange with only two options, says Naqvi: the KSE can either increase the allocation of a percentage of the trading fee – commonly known as ‘Laga’ – to generate more money for the fund, or it can reduce the maximum contribution of the fund from Rs75 million to Rs25 million per default case.

Naqvi believes going for the first option will scare away investors and clients, as dwindling volumes on the bourse have already hurt the earnings of a majority of brokers in recent years. “The brokerage fee is charged on volumes. Brokers’ earnings are extremely low, as most of them are barely surviving despite a rising KSE-100 Index,” he said.

As for the second option, Naqvi says the KSE board already recommended it in October last year but the SECP has yet to approve it.

National Investor Protection Fund

Naqvi says the best solution to ensure investor protection in the long run is the creation of a separate national investor protection fund. “I think this fund should be of substantial size, preferably about Rs5 billion, in which all exchanges, the SECP and the Asian Development Bank should contribute,” he said. He added that the fund should operate along the lines of a typical deposit protection scheme, through which small investors of up to Rs100,000 should be protected. He said the KSE already has Rs500 million, adding that its size can be increased to Rs900 million with the help of the two other exchanges.

“The rest of the contributions should be made by the government and international financial institutions like the ADB. Investor protection is essential for capital markets. We cannot leave small investors on their own in case a broker defaults,” he said.

Published in The Express Tribune, May 19^th, 2013.

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KARACHI: A small bet placed in 1939 by employees of the Shell Oil Company on who could travel farthest on the same quantity of fuel has turned into a global competition seven decades later. The same tradition recently inspired engineering students from Pakistan to create what may possibly be the most fuel-efficient car of the world.

The Shell Eco Marathon, which is what the competition is known as, takes place in the Americas, Asia and Europe every year, for which student teams from engineering universities all around the world attempt to build automobiles that can travel the farthest while consuming the least amount of fuel. A total of 127 teams will participate in the Asian Shell Eco Marathon this year, which will be held in Kuala Lumpur, Malaysia. Thirteen teams from eight different engineering universities will be representing Pakistan in the prestigious event.

One of the competing teams from Pakistan this year is from the Pakistan Navy Engineering College (PNEC), which is a constituent college of the National University of Science and Technology (NUST).

“We expect our urban concept car to travel 200 kilometres (km) consuming just one litre of gasoline [petrol]. Its estimated speed will be around 30 kilometres per hour,” Masroor Mehdi, a final year mechanical engineering student at NUST-PNEC, explained to The Express Tribune. Mehdi is part of a 14-member team that has built two separate cars for the upcoming competition.

There are two categories a team can compete in: urban concept cars and prototype cars. An urban concept car should be a four-wheeler and must have almost all features that are generally considered necessary for ordinary cars, such as comfort, safety, wipers, luggage space etc.

Prototype cars are ‘futuristic cars’ that, in most cases, are three-wheelers, ultra-lightweight, cut back on friction and are built with honed aerodynamics.

All cars must belong to one of the seven fuel categories: namely, petrol, diesel, bio-fuels, fuel made from natural gas, hydrogen, solar or electricity. Both cars manufactured by NUST-PNEC run on petrol.

According to Babar Ali, another team member, last year’s team from NUST-PNEC had built a car that travelled 66km using a litre of gasoline. However, the Asian winner of last year’s competition had manufactured a car that had a fuel efficiency level of 192km per litre. “That’s why we are fairly optimistic about our chances of winning the competition this time around,” he said.

The urban concept car weighs around 110 kilogrammes (kg). The one manufactured last year weighed 148kg. For comparison, a small, ordinary Pakistani car weighs roughly 1,000kg. “In order to make our cars weigh less and perform better, we’ve used 6061-T6 grade aluminium for their chassis. It gives them the strength of mild steel, but it’s a lot lighter in weight. The lighter weight, better aerodynamics and less friction make our cars more competitive,” said Ali Akram, a team member currently majoring in mechanical engineering.

Pakistan Navy is the key sponsor of the team, as the cars have been manufactured at the Pakistan Navy Dockyard in Karachi. Honda has sponsored the car engines, while the cars’ bearings have been sponsored by SKF, an American company, through its local distribution firm. Lucky Cement, Pepsi and Habib Bank are other sponsors.

“Funding is a major issue. We approached all sponsors ourselves. Sadly, our corporate sector is not willing to support us as much as their counterparts support engineering students in other countries,” Akram said.

According to back-of-the-envelope calculations based on informal student interaction, the Indonesian car that won last year’s competition in Asia was manufactured at a cost of roughly Rs2.5 million. “This year, we have manufactured both cars at a total cost of between Rs400,000 and Rs500,000. Isn’t that an achievement, given the low level of sponsors’ support in our case?” he asked, rhetorically.

“We were 10th among the 117 teams last year. I’m confident that we’ll be in the top three teams this time around,” Akram said.

Published in The Express Tribune, May 15^th, 2013.

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While most business schools all over the world conduct such exercises regularly to gauge the acceptance level of their fresh graduates in the job market along with average starting salaries, it is the first-ever employment survey that the institute has carried out specifically for its BBA programme graduates, according to SZABIST President Dr Saqib Rizavi.

“We carried out the survey to formulate policies in line with job market expectations based on empirical evidence,” Rizavi told The Express Tribune in an interview.

A total of 758 students graduated from SZABIST in December 2012. About 21%, or 159 students, belonged to the BBA programme. However, results of the employment survey are based on a response rate of about 60.3%, or 96 graduates, as many recent BBA degree-holders chose not to participate in the survey.

“I believe that a response rate of over 50% is reflective of actual trends in the job market. I think 60% is a healthy response rate,” Rizavi said.

While the average monthly salary across all sectors of the economy was Rs35,448, the highest average salary that recent SZABIST BBA graduates received was in the category of fast-moving consumer goods (FMCG) companies, which was Rs72,333 per month.

Even though no credible data in the form of employment surveys is available for graduates of past years, Rizavi believes that the job market within the FMCG sector has gradually become less attractive for SZABIST graduates of late. With only six students out of the 96 respondents joining this sector, he said the share of BBA graduates joining FMCG companies seems to have declined in the recent past.

Logistics and distribution companies paid on average a monthly salary of Rs49,667, which made the sector the second most attractive employer for SZABIST’s BBA graduates of 2012. Although only six graduates joined logistics and distribution companies, the SZABIST president believes it to be a growing sector, which will likely absorb more graduates in coming years.

The largest number of SZABIST BBA graduates went into the media, communications and advertising field. Interestingly, the average monthly salary these 40 graduates received was Rs34,075, which was lower than the average monthly salary across all sectors of the economy.

The second largest number of those surveyed, 23 graduates, joined banking and financial services in spite of the fact that the average monthly salary for the sector remained Rs31,391, which is lower than the overall average.

According to Rizavi, lower salaries in the banking and financial sector is a temporary phenomenon, which will be over soon. “Despite consolidation of many banks, I believe there is still room in the financial sector to absorb our future graduates,” he noted.

The lowest average salaries per month were offered in technology (Rs26,250) and education and consultancy (Rs25,750), which brought the overall average salary down considerably.

Although the names of many multinational companies appear on the list of employers, a majority of them are of Pakistan origin. Some of the big names include Unilever, Philip Morris, Nokia, Toyota, National Foods, Nielsen, KPMG, EFU and several private medium-sized banks.

The highest remuneration that a SZABIST BBA graduate is getting is currently working at Toyota at a monthly salary of Rs150,000.

Published in The Express Tribune, May 11^th, 2013.

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KARACHI: In a country where most public-sector enterprises (PSEs) are money-guzzling white elephants costing the national exchequer billions of rupees annually just to stay afloat, how does the government reward the man at the helm of one of the very few PSEs that are actually profitable and growing? It sacked the chairman of State Life Insurance Corporation unceremoniously, although his job contract was to expire just a month later.

Last week, media reports emerged that Shahid Aziz Siddiqi, who became State Life chairman in June 2008, had been sacked by the caretaker government allegedly because he was a ‘political appointee’ of the last government. However, sources in State Life said no formal termination notification of Siddiqi had been received at the Karachi head office until the filing of this report. At the same time these same sources do not categorically contradict the reports of the removal.

Unprecedented growth

Siddiqi presided over what can probably be described as the five-year period of highest growth ever recorded in the history of the life insurance giant, which came into being in 1972 with the nationalisation of 32 life insurance companies of the country.

Compounded annualised growth rates for key indicators of State Life for five-year periods dating back to 1978 show that the company’s performance between 2008 and 2012 remained unparalleled, especially in terms of premium collection. The first five-year period of State Life – from 1973 to 1977 – is not included in this analysis due to a lack of credible data, especially for 1974.

The first and foremost performance indicator of any life insurance company is the growth in its renewal premiums, which is reflective of clients’ loyalty and satisfaction level. Under Siddiqi’s stewardship, renewal premiums increased at an annualised rate of 24% between 2008 and 2012. The closest annualised growth rate that State Life achieved in its 34-year history under review was in the five-year period of 1983-87, when renewal premiums rose on an average of 20%.

Arguably, the second most important performance indicator of an insurance company is its first-year premiums, commonly known as FYP that is the premium falling due during the first year the policy is in force. They grew at an annualised rate of 29% under Siddiqi’s watch every year between 2008 and 2012. The second highest growth rate in FYP was recorded in the five-year period of 1978-82, which was 27%.

It is not just premium collection in which State Life did outstandingly well in the last five-year period. In terms of the company’s ‘total outgo’ – which reflects whether a life insurance company is meeting its obligations to its policyholders, such as claims, etc – the annualised growth rate remained 21% for 2008-12, which is the highest among all the seven five-year periods of State Life under review.

Most astounding was the annualised increase of 16% in the number of lives covered in group insurance between 2008 and 2012, as the growth rate in this category never exceeded 5% in the company’s history. Even if the increase in the number of lives covered through the Benazir Income Support Programme is accounted for, the rise of 16% remains phenomenal, as the industrial sector growth has largely been dismal over the same period.

As for other key performance indicators – namely, investment income, total income, life fund, total yield and number of individual lives covered – the last five years have been either the best or the second best in the company’s history. In particular, annualised growth rates for all key performance indicators for 2008-12 were higher than those in 2003-07 and 1998-2002 periods.

When contacted by The Express Tribune, the State Life chairman refused to comment on the story.

Published in The Express Tribune, May 8^th, 2013.

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The decision to review the voluntary delisting regulations comes after global consumer goods company Unilever recently opted to delist its Pakistan subsidiary from the KSE through a security buyback at the rate of Rs15,000 per share.

“Even before Unilever Pakistan expressed its intention to delist itself, we had already set up a technical committee to review listing regulations,” KSE Managing Director Nadeem Naqvi told The Express Tribune in a recent interview.

Under the current voluntary delisting regulations, the delisting company is required to call a general meeting of its shareholders and pass a special resolution approved by not less than three-fourth, or 75%, of its stakeholders, resolving that the company’s shares be delisted from the bourse.

According to Naqvi, proposed regulations stipulate that sponsors of up to 90% stakes – as opposed to the earlier requirement of 75% – must be in favour of delisting from the exchange. Moreover, a delisting bid will fall apart under the new rules even if one-third of the minority stakeholders express their dissent. It should be noted that under the existing regulations, minority shareholders with up to a 25% stake in a company have no power to derail a voluntary delisting effort by the sponsors of 75% stakes.

The KSE management appears to have hastened its efforts to frame the new voluntary delisting regulations in the wake of a strong opposition that minority shareholders of Unilever Pakistan showed while the company was being delisted.

In an email to The Express Tribune on April 2, Girish Bhakoo of New York-based hedge fund Acacia Partners had expressed serious concerns over delisting rules under which minority shareholders have effectively no power to confront majority shareholders should the latter decide unilaterally to delist their company.

“I think if the delisting rules are not changed, then we would not want to invest as much in Pakistan. We are hopeful, though, that regulators will see the light and evolve the rules to protect minority shareholders’ property rights,” Bhakoo stated, adding that Pakistani stock market will be better off eventually if the rules are fixed in time.

Naqvi says the proposal about the new regulations has already been approved by the regulatory affairs committee, which is the main body that determine KSE’s policies in the post-demutualisation setting. “Now the proposal is going to go to the board of directors of the exchange. After that, it will go to the Securities and Exchange Commission of Pakistan for final approval,” Naqvi said.

In the most recent meeting of the KSE board held last week, the board did not take up this issue due to shortage of time, Naqvi said. However, he added that the final decision is likely in the upcoming meeting.

Published in The Express Tribune, May 7^th, 2013.

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However, according to Karachi Stock Exchange (KSE) Managing Director Nadeem Naqvi, growth in the agriculture sector is likely to slow down as the country is expected to join an International Monetary Fund (IMF) programme under the next government.

“I do not see the high level of support to the agriculture sector to continue, given the very limited financial leeway available to the (next) government. Approaching the IMF will lead to a drastic reduction in power-sector subsidies, effectively increasing the input costs for farmers. Secondly, there will be real pressure to reform the tax system, which can possibly mean RGST as well as a tax on agriculture income,” he said.

Disregarding quality differentials and considering average prices, revenues of four major crops – wheat, cotton, sugarcane and rice – were approximately Rs530 billion in 2007, according to Naqvi. “The revenue figure for 2011-12 for the same crops was Rs1.5 trillion. This means that revenues of the agriculture sector increased by Rs1 trillion in five years,” he said. That translates into an annualised increase of over 23% in farmers’ income over the five years when the PPP government was in power. “In dollar terms, that is an influx of around $12-13 billion into the rural economy in just half a decade,” he added.

As per the recent rebasing exercise by the Pakistan Bureau of Statistics, the size of the agricultural sector now stands at 23% of total gross domestic product (GDP), as opposed to the earlier estimated share of 20.3%. Agriculture sector growth for fiscal 2008, 2009, 2010, 2011 and 2012 remained 1%, 4%, 0.6%, 2.4% and 3.1%, respectively. In 2012-13, the agriculture sector is estimated to have grown at the rate of 3.4%.

Fallout

The KSE MD believes growth in agricultural income over the next five years will be lower than what it has been in the last five years. He also noted that as power subsidies come down and electricity becomes expensive, retail prices of consumer goods will go up, hurting the margins of the fast-moving consumer goods (FMCG). “I foresee a slowdown in the earnings growth of the FMCG sector. As earnings slow down, their valuations can also possibly be affected. As a result, I see sector rotation in the next five years with less emphasis on the FMCG sector in contrast to the last five years,” he said.

Currently, stocks in the FMCG sector trade at nearly 34 times 2012 earnings, compared to the seven times earnings that the overall market trades at, according to BMA Capital, a brokerage house based in Karachi.

In a separate report released in January early this year, the State Bank of Pakistan said the net profits of FMCGs listed on the KSE grew by over 20% in FY12. “It is important to mention that the FMCG’s bottom-line has been growing this rapidly for the last five years, and the sector has outperformed the KSE 100-Index with a wider margin,” the SBP report said.

“I think we are going to see a shift in income generation from rural to urban in the next five years. As that happens, I think manufacturing entities, textiles, cement, oil and gas and telecoms will probably be the more attractive sectors for investors [in the future],” Naqvi said.

Published in The Express Tribune, May 5^th, 2013.

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