'Sustained rally of capital markets is supported by macroeconomic improvements' An interview with Muhammad Lukman CEO, NCCPL

Stock indices have witnessed boom periods in previous eras as well. However, this time the sustained rally of domestic capital markets is supported by an improvement in overall macroeconomic indicators as well as continuing reforms and improvements to the structures that strengthen capital markets.
"Existing industries are expanding at a rising pace. Now, the much-awaited development is a boost in the emergence of new businesses and further industrial activity" contends the chief executive officer of the National Clearing Company Limited, Muhammad Lukman. He cites the recently unveiled China-Pakistan Economic Corridor as a game changer for the domestic economy and states that as the projects entailed in that strategic plan get off the ground, international investors will gravitate towards Pakistan.
However, the recent slowdown of economic growth in China has taken a toll on global markets, including Pakistan's capital markets. Consequently, local equities have been under pressure, after the KSE 100-index earlier registered a fresh all-time high.
Improving macroeconomic conditions Pakistan's growth has been stifled by a crippling energy shortage in recent years. However, the NCCPL head is confident that the energy sector is on the mend and that an end to the shortage is imminent. "Global oil prices are down to multi-year lows; that's a great opportunity for us to boost our power generation from thermal sources. At the same time, the hydel projects which require longer gestation period are also being expedited so my sense is that the energy situation will improve in coming months", he asserts.
"Perceptions are key for attracting investments and driving economic activity. In recent weeks, a slew of articles and features about the country's economic prospects have appeared in leading international publications. Foreign investors are increasingly interested in conventional industries and sunrise sectors of the economy. All these signs point towards an improving perception of the country."
Lukman highlights that the returns on investment that this country has to offer are unparalleled in the developed countries and also enviable for many of the developing economies. He also draws attention to the competitive labour costs and teeming youth population that is poised to drive domestic demand and provide ample additions to the workforce to support the industrial base. "The IT, business process outsourcing and call centers are all emergent sectors that can really rake in foreign investments in the next few years", he contends.
Strengthening the capital markets The chief executive also asserts that a number of structural improvements have already been introduced to the capital markets. The last remaining peeve has been custody of assets. On that front, the National Clearing Company has introduced a new service; NCS. Using the service, investors make trades through their respective brokers. However the custody of shares and funds is maintained by NCCPL. The securities and monies are released, as per clients' trade requests. "This service is especially beneficial for non-resident Pakistanis (NRP) and other investors who are mindful of maintaining segregation between brokerage and custodial services", explains the CEO.
The new service has gained traction slowly in its initial period, with only a few dozen service recipients. However, the NCCPL is now partnering with various brokerage firms to promote its use and is hopeful that NCS will gain popularity among investors residing in smaller cities and towns of the country as well as NRPs.
Legal coverage of the NCCPL has been enhanced in the Securities Act and it is now the declared "central counter party". The institution aims to implement relevant compliance requirements within the next few months. It has also assumed a critical role in tax collection on behalf of the Federal Board of Revenue (FBR), with regards to the capital gains tax collection.
Growing investor base Commenting on the number of registered investors in the domestic stock markets; Lukman contends that the reported tally understates the number of investors. "There is a precedence of people pooling their funds in a single account and delegating the task of portfolio management to one person. Then the number of people investing through mutual funds is also posting consistent increases" he points out. Still the number of investors has not grown at a high pace.
To improve awareness, the NCCPL, all three stock exchanges, the apex regulator as well as prominent brokerage firms are colluding on a campaign whereby seminars and informational sessions are being organized all over the country. Lukman highlights that universities and other educational institutions are prime targets for such awareness sessions. "The youth are increasingly conscious of needs to save and invest. They are also generally more financial literate and willing to invest in various avenues. While we are already conducting sessions to raise awareness within this population segment; more holistic efforts are needed to raise the financial awareness of the new generation", he contends.
Towards new horizons "A certain level of volatility is inherent to the capital markets, however in recent times, our markets have witnessed consistency while the extreme gyrations of previous eras are now extinct", he says; lauding the improvement in market mechanisms, such as the mitigation of systemic risk. Following moves to strengthen the base, Lukman now alludes to the introduction of new products to the market.
"The exchanges play the main role in bringing new products such as derivatives to the market. Having said that; NCCPL continues to work closely with other stakeholders, on this front. The margin trading facility that we introduced is now witnessing healthy activity. We will also re-launch margin financing with further improvements, within a couple of months"; the chief executive lists the enhanced market features for investors.
He also informs that the NCCPL's market research suggests "huge demand for more Islamic products". Lukman states that the institution is working to fulfill this need and reports a new, Islamic window will be introduced for margin financing, soon.
"The whole capital market will also be subjected to a comprehensive system audit. The Securities and Exchange Commission of Pakistan (SECP) is constituting a committee which includes Chief Compliance Officers from all stakeholder organizations. This committee will oversee the holistic audit with an aim of further enhancing security and confidence building measures for our capital markets".
Summing up, the chief executive expresses confidence in the country's economic prospects and the resultant impact on capital markets of the country. He stresses the need to inculcate financial discipline among investors so that the markets can provide gains in a sustained manner. "Perceptions have improved and there is new found growth impetus. The growth spurt is imminent and that spells growth for the economy and the capital markets", concludes Lukman.