Foreign Portfolio Investment (FPI) in Pakistan has been declining in the equity market in current financial year, in marked contrast to the previous financial year when foreign portfolio investors flooded the market. Pakistan attracted only $68.2 million during the July-November 2014 as opposed to $140.3 million in the corresponding period last year. This reflects a year-on-year decline of 51.3% in FPI, which includes foreign public investment.
Dr Hafiz A Pasha stated that the biggest risk is that foreign portfolio investment may turn negative in coming months as Pakistan fights the war on terror with much greater intensity and there is some blow back.
He added that the IMF projection of net portfolio investment of $1.2 billion, excluding the Ijara Sukuk bond floatation, is likely to be missed by a wide margin. In fact, some repatriation of capital from stock market has already started, he argued.
Vahaj Ahmed, a researcher in Topline Securities, said that by 23 December the outflow of portfolio foreign investment was $47 million, including $29 million of oil companies. He said declining oil prices in international market have affected the FPI in Pakistan which is 20 percent of total FPI in KSE-100 index. He further said that outflow of FPI is the result of a reduction in oil prices as investors have taken out money from oil sector. Another reason which has contributed to a reduction in portfolio investment is the long holidays in December with investors locking-in profit. Now, major decisions would be taken in the next year after further analysing the situation, he added.
Talking about future prospects of FPI, he said with economic recession in Qatar and Nigeria due to oil prices, Pakistan's weight in MSCI Frontier Markets (MSCI-FM) has increased to approximately 8.5 percent which encourages frontier market funds to continue cherry picking local equities and increase their investments in Pakistan capital markets.
Khurram Shabbir, CEO, Fair Deal Securities (PVT) Limited, said that "right after the Peshawar tragic incident, we witnessed some reduced volumes in the market but we don't expect this to have a very long-term negative effect".He maintained that volumes on a daily basis at KSE are between 130 million to 200 million. After 2008, the market also witnessed volumes as low as 30 to 50 million for many months, making stock market of Pakistan very dull. Volumes have stabilised since end 2012 and are now beginning to rise.
"If we talk about foreign investment, their buying since 2012 is very prominent from the figures that we get from NCCPL. Keeping all the above positives in view, we maintain a positive outlook for our stock market and expect the index to take a hike of 6-7 % by June 2015," he added.
At present, foreign investors hold around 29 percent of equity in the top 25 listed companies. The government, with a 35 percent stakes in the equity market, remains the largest shareholder, while 23 percent shareholding vests with the local institutions and 13 percent with high net-worth investors.
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