SECP rule relaxation prompts inflow of fresh funds into PSX

Mutual funds emerge as largest domestic buyers of stocks during outgoing week

KARACHI: The government has provided much-needed liquidity for the weakening Pakistan Stock Exchange (PSX), which has gone down sharply due to political uncertainty and foreign investor pullout, by easing regulations for mutual funds.

The apex regulator has increased investment ceiling for mutual funds which can now invest up to 100% of cash in the PSX compared to the previous 95% limit, providing the market with billions of rupees in additional money flow.

“The Securities and Exchange Commission of Pakistan...withdraws the requirement of maintenance of 5% cash and near cash instruments in equity funds and funds of funds...with immediate effect,” SECP Executive Director Imran Inayat Butt said in a notification.



The relaxation has allowed equity funds to pour an additional Rs15 billion into the market, which is equivalent to 5% of their investment size of Rs294 billion as on October 20, 2017, according to data available with The Express Tribune.

The performance of funds of funds at the PSX has remained very poor. Mutual funds have divested over Rs37 billion in the bourse, according to a monthly report on assets under management.

However, following the change in the regulation in the middle of current week, the mutual funds became the largest domestic buyers of stocks in the week with injection of over Rs1.79 billion ($17 million) and absorbed selling from other investors including foreigners. Consequently, the PSX’s benchmark KSE 100-share Index recovered 0.9% week-on-week to 41,436 points on Friday. Earlier, the index had fallen by 16% since June 2017.

About a month ago, a delegation of 25 PSX officials and senior brokers met and asked Prime Minister Shahid Khaqan Abbasi to rescue the bourse by creating a Rs20-billion fund under the management of state-owned National Investment Trust.

In addition to this, they sought relaxation in tax levy on stock trade which included 15% capital gains tax, 15% tax on dividend, tax on bonus shares and tax on brokers.

The SECP had set the condition of 5% cash-holding for mutual funds in January 2017 in order to enable them to redeem their units any time.



Analysts have time and again noted large-scale selling by mutual funds to redeem their units, especially since the market has been on a downward trajectory following the announcement of anti-market budget in May 2017 and heightened political uncertainty.

Published in The Express Tribune, November 12^th, 2017.

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