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Chapter 6 Capital Markets and Corporate Sector The performance of Pakistan's equity market, capital markets, focusing on the equity market, represented by the KSE-100 index, showed debt market, commodity futures market, non- significant growt...

Chapter 6 Capital Markets and Corporate Sector The performance of Pakistan's equity market, capital markets, focusing on the equity market, represented by the KSE-100 index, showed debt market, commodity futures market, non- significant growth due to favorable market banking financial companies, corporate sector, sentiment, economic stability, and successful and insurance sector for the fiscal year 2024. IMF programs. Various securities, such as term finance certificates, Sukuk, and commercial 6.1 Equity Market papers, were traded in the debt market, The equity market, also known as the stock contributing to corporate financing. Introducing market, is a place where shares of listed government debt securities through the capital companies are traded. It involves trading long- market infrastructure was a significant term and short-term securities and receives much milestone, helping to reduce borrowing costs attention as it gives companies access to cheap and expand the investor base. Finally, the capital. Investors have specific ownership rights. chapter will also discuss the capital market Stockholders earn money when the stock price reforms and development activities introduced rises or through dividends, and often, they earn a by the Securities and Exchange Commission of return from both. Pakistan (SECP), the regulatory body for capital markets in Pakistan. 6.1-a Performance and Structure of Pakistan’s Equity Market Capital markets encompass a wide range of During the July-March period, the Pakistan financial markets that serve as efficient channels Stock Exchange Limited (PSX) benchmark for businesses to raise funds through various index, the KSE-100 index, performed financial instruments such as stocks, bonds, and remarkably well and registered a significant more. These markets are vital as they link those growth of 61.6 percent, the highest growth in a with funds without immediate productive use to fiscal year since 2003. The trend of the KSE-100 those who need them. Additionally, they provide index remained positive throughout the fiscal a platform for trading crude oil, metals, and year as it increased from 41,453 to 67,005. agricultural commodities. A well-developed During the period under review, the index closed capital market facilitates the efficient at its highest level of 67,142 on March 28, 2024, distribution of risk among participants within a owing to IMF’s successful review under the competitive framework, ultimately enhancing SBA program, contained current account, overall resource allocation efficiency and prudent fiscal management, tight monetary strengthening corporate value. policy, efforts to contain circular debt, and This chapter presents an overview of Pakistan's political & economic stability which boosted investors’ confidence (Fig-6.1). 91 Pakistan Economic Survey 2023-24 Fig-6.1: Trend of KSE-100 Index (July-March FY2024) 70,000 65,000 60,000 55,000 50,000 45,000 40,000 3-Jul-23 28-Jul-23 22-Aug-23 16-Sep-23 11-Oct-23 5-Nov-23 30-Nov-23 25-Dec-23 19-Jan-24 13-Feb-24 9-Mar-24 Source: PSX The average daily trading volume increased to a total listed capital of Rs 1,673 billion and a 602 million shares during July to March in fiscal market capitalization of Rs 9,448 billion. The year 2024, compared to 204 million shares details of PSX from FY2020 to March 2024 are during the same period last year. As of March presented in Table 6.1. 31, 2024, there were 524 listed companies with Table 6.1 Profile of the Pakistan Stock Exchange FY2024 FY2020 FY2021 FY2022 FY2023 Jul-Mar Total No. of Listed Companies 531 532 530 524 524 Total Listed Companies’ Capital (Rs billion) 1,421.09 1,442.64 1,525.90 1627.17 1,673.00 Total Market Capitalization (Rs billion) 8,035.36 8,297.31 6,956.51 6,369.47 9,447.69 New Companies Listed during the year 3 5 5 4 4 Average Daily Traded Volume-Ready + 323.5 527.5 408.0 273.0 602.2 Futures (Shares in millions) Total Volume Traded (in millions) 108,426 131,354 101,657 67,199 113,184 Source: Pakistan Stock Exchange Table 6.2 presents the month-wise performance actively investing and participating in trading of the KSE-100 index, market capitalization, and activities. However, the volume decreased after share turnover. The turnover peaked in December owing to high stock values. December 2023, indicating that investors were Table 6.2: Month-wise performance of the KSE-100 Index 2022-23 2023-24 Total Market Turnover Total Market Turnover Months Months KSE 100 KSE 100 index Capitalization in shares Capitalization in shares index (Rs billion) (billion) (Rs billion) (billion) Jul-22 40,150.36 6,771.94 2.62 Jul-23 48,034.60 7,231.76 7.68 Aug-22 42,351.15 7,034.96 6.86 Aug-23 45,002.42 6,715.88 6.54 Sep-22 41,128.67 6,782.04 3.84 Sep-23 46,232.59 6,885.57 3.20 Oct-22 41,264.66 6,663.36 5.81 Oct-23 51,920.27 7,551.77 7.93 Nov-22 42,348.63 6,768.15 4.28 Nov-23 60,531.27 8,729.52 13.74 Dec-22 40,420.45 6,500.83 3.99 Dec-23 62,451.04 9,062.90 20.61 Jan-23 40,673.06 6,394.03 3.89 Jan-24 61,979.18 9,073.76 11.29 Feb-23 40,510.37 6,272.51 3.52 Feb-24 64,578.52 9,225.16 6.64 Mar-23 40,000.83 6,108.17 3.67 Mar-24 67,005.11 9,447.69 7.29 Apr-23 41,580.85 6,289.90 1.93 May-23 41,330.56 6,277.07 3.55 Jun-23 41,452.69 6,369.47 3.21 Source: Pakistan Stock Exchange 92  Capital Markets and Corporate Sector Fig-6.2: Total Market Capitalization July-March FY2024 (Rs billion) 10000 9448 9500 9000 8500 8000 7500 7000 6772 6369 6500 6000 5500 5000 Mar-24 Feb-23 Jun-23 Mar-23 Feb-24 Apr-23 Nov-22 Nov-23 Oct-22 May-23 Oct-23 Jul-22 Aug-22 Sep-22 Jan-23 Dec-22 Jul-23 Aug-23 Sep-23 Jan-24 Dec-23 Source: PSX The total funds mobilized in the Pakistan Stock 6.1-b Sector-wise Market Capitalization at Exchange between July 2023 and March 2024 Pakistan Stock Exchange amounted to Rs 18,911 million, compared to Rs The PSX's market capitalization was recorded at 35,440 million in the corresponding period last Rs 6,369 billion on 30 June 2023 and closed at year. The significant difference is due to the debt Rs 9,448 billion on 31 March 2024, reflecting an amount issued, which was Rs 4,500 million increase of 48.3 percent. It gained Rs 3,079 during the July-March FY2024 period compared billion in the period under review. Sector-wise to Rs 29,473 million in the same period of details are given in Table 6.3. FY2023. Table 6.3: Sector-Wise Market Capitalization Market Cap Market Cap % Change Sectors End June 2023 End March 2024 (Rs million) (Rs million) Commercial Banks 1,011,875.8 1,787,203.4 76.6 Oil & Gas Exploration Companies 812,491.7 1,273,124.7 56.7 Food & Personal Care Products 690,461.1 809,795.3 17.3 Fertilizer 473,148.7 684,306.8 44.6 Cement 444,827.5 604,365.4 35.9 Chemical 479,041.7 562,040.7 17.3 Automobile Assembler 231,338.3 431,357.2 86.5 Power Generation & Distribution 215,713.5 380,524.8 76.4 Textile Composite 248,139.0 352,151.9 41.9 Tobacco 212,220.9 332,583.5 56.7 All Others 1,550,214.4 2,230,240.7 43.9 Total 6,369,472.6 9,447,694.4 48.3 Source: PSX Concerning the size of market capitalization, the percent, Food & Personal Care Products at 8.6 top five sectors are presented in Figure 6.3. As percent, Fertilizer at 7.2 percent, and Cement at evident from the figure, Commercial Banks 6.4 percent. Moreover, the market capitalization dominate the overall market capitalization of of these five sectors consists of 54.6 percent of PSX with a share of 18.9 percent, followed by the total market share. Oil & Gas Exploration Companies with 13.5 93 Pakistan Economic Survey 2023-24 6.1-c Trend in Global Equity Markets the external sector and the formation of a new The performance of major world stock markets political government. for the first nine months of FY2024 is depicted Fig-6.3: Top Five Sectors July-March FY2024 in Figure 6.4, all markets revealed a positive (% of Total Market Capitalization) trend except the Shanghai Stock Exchange Commercial (SSE) Composite Index, primarily the property Banks, 18.9 Cement, 6.4 sector crisis in China, which dented the investors’ sentiments. While analyzing the other global indices, the KSE-100 index reflects a significant increase (62 percent) during July- Fertilizer, 7.2 March FY2024 compared to other indices. This confidence indicates positive market sentiments and investors’ trust in the Pakistan Stock Exchange mainly because of the successful IMF Oil & Gas Exploration Food & Personal program under the Stand-by Arrangement Companies, 13.5 Care Products, 8.6 (SBA), which encouraged the performance of Source: PSX Fig-6.4: Trend of Major World Standardized Equity Indices 170 160 KSE-100 S&P 500 150 CAC 40 SSE Composite 140 Sensex 30 130 120 110 100 90 80 13-Oct-23 28-Oct-23 30-Jun-23 15-Jul-23 30-Jul-23 11-Mar-24 26-Mar-24 12-Dec-23 27-Dec-23 11-Jan-24 26-Jan-24 13-Sep-23 28-Sep-23 10-Feb-24 25-Feb-24 14-Aug-23 29-Aug-23 12-Nov-23 27-Nov-23 Note: All indices are standardized to 100 on the initial day of the sample taken in this figure. Source: Investing.com1 6.1-d Performance of Major Asian Lumpur Composite Index of Malaysia (11.6 Markets percent), Jakarta Stock Exchange Composite The performance of major Asian stock market Index of Indonesia (9.0 percent), Korean indices presents a diverse situation from the end Composite Stock Price Index of South Korea of June 2023 to the end of March 2024 (Figure (7.1 percent), PSEi Composite of Philippines 6.5& Table 6.4). KSE-100 remained the most (6.7 percent) and FTSE Straits Times of attractive market for investors as it reflects an Singapore (0.6 percent). The decline has been unprecedented increase of 61.6 percent followed observed in the Hang Seng of Hong Kong, by VN30 Index of Vietnam (15.5 percent), BSE Thailand's SET Index, and China's Shanghai Sensex 30 Index of India (13.8 percent), Kuala Composite. 1 S&P 500 is a stock market index tracking the performance of 500 large companies listed at the US stock exchange. SSE Composite index is a stock market index of all stocks that are traded at the Shanghai Stock Exchange. Sensex 30 is a free-float market-weighted stock market index of 30 well established companies on the Bombay Stock Exchange. The CAC 40 is a benchmark French stock market index, represents a capitalization-weighted measure of the 40 most significant stocks among the 100 largest market caps on the Euro next Paris. The KSE-100 index is a stock market index acting as a benchmark to compare prices on the Pakistan Stock Exchange over a period. 94  Capital Markets and Corporate Sector Table 6.4: Performance of Major Asian Stock Market Indices (July-March FY2024) Index On Index On Country Index 30.06.2023 31.03.2024 Pakistan KSE-100 Index 41452.7 67005.1 MSCI-EM MSCI Emerging Market Index 989.5 1045.1 China Shanghai Composite 3202.1 3041.3 Vietnam VN30 Index 1123.1 1296.9 India BSE Sensex 30 64718.6 73651.4 Indonesia Jakarta Stock Exchange Composite Index 6661.9 7262.5 Hong Kong Hang Seng 18916.4 16541.4 Singapore FTSE Straits Times 3205.9 3224.0 Malaysia Kuala Lumpur Composite Index 1376.7 1536.1 Philippines PSEi Composite 6468.1 6903.5 Thailand SET Index 1503.1 1377.9 South Korea Korean Composite Stock Price Index - KOSPI 2564.3 2746.6 Fig-6.5: Asian Stock Market Indices Growth: July-March FY2024 (%) 70 61.6 60 50 40 30 20 15.5 13.8 11.6 9.0 6.7 7.1 10 5.6 0.6 0 -10 -5.0 -12.6 -8.3 -20 Pakistan MSCI-EM China Vietnam India Indonesia Hong Kong Singapore Malaysia Philippines Thiailand South Korea Source: PSX & Investing.com 6.2 Debt Markets 6.2-a. Debt Securities The debt market is a financial market where debt a. Publicly Issued Debt Securities: instruments such as bonds, treasury bills, During July-March FY2024, ten debt securities Sukuks, deposit certificates, commercial papers, were listed, and their break-up is given in Table etc., are traded. The debt market plays a pivotal 6.5. role in providing an opportunity for governments and corporations to borrow to finance their Table 6.5: Debt Securities activities. Moreover, it also allows investors to Sr. Type of Security No. of Amount diversify their portfolios and manage risk No. Issues (Rs billion) through investments in different debt i. Corporate Sukuk 1 1,000 instruments. Government Debt ii. 9 282.9 Securities (Ijara Sukuk) Debt markets make financial markets more Total 10 1,282.9 competitive by generating market interest rates Source: Securities and Exchange Commission of Pakistan reflecting the funds' opportunity cost at each maturity. This is essential for efficient b. Privately Placed Debt Securities: During investment and financing decisions. July-March FY2024, 26privately placed debt 95 Pakistan Economic Survey 2023-24 securities were reported, and their break-up is amounting to Rs 1,175.3 billion. Table 6.7 given in Table 6.6. shows a category-wise breakup. Table 6.6: Debt Securities Table 6.7: Debt Securities (Outstanding) Sr. Type of Security No. of Amount  Name of security Sr. No. of Amount No. Issues (Rs billion) No. issues Outstanding Privately Placed Term (Rs billion) i. 4 23.2 Finance Certificates Term Finance Certificates 53 198.2 i. (TFCs) ii. Privately Placed Sukuk 22 129.8 ii. Sukuk 45 694.2 Total 26 153.0 Source: Securities and Exchange Commission of Pakistan Government Debt iii. 9 282.9 Securities (Ijara Sukuk) Total 107 1,175.3 c. Debt Securities Outstanding: As of March Source: Securities and Exchange Commission of Pakistan 31, 2024, 107debt securities remain outstanding, Box-I: Issuance of Government Debt Securities through PSX The country witnessed its first-ever auction of government debt securities (GDS) through capital market infrastructure institutions in December 2023. The inaugural auction featured a Shariah-compliant GDS, i.e., one-year Ijara Sukuk, where investors finance the acquisition of an underlying asset and receive rental payments at the end of the tenure. The auction marked a remarkable achievement in which the sovereign Sukuk issue seeking to raise Rs 30 billion was oversubscribed 16 times and enabled the government to raise Rs 30.2 billion at a competitive cut-off yield of 19.5199 percent. This initiative has contributed to raising GDS visibility, lowering borrowing costs, broadening the investor base, and improving the tax management and collection system. Different types of sovereign Sukuk instruments, including discounted, fixed rate, and variable rate Sukuks of various maturities, have been issued and are available for trading at PSX. Given the success of past auctions, the GOP has increased the auction targets and the frequency of auctions from a monthly to a fortnightly basis. Instrument-wise details of funds raised by the GoP are tabulated below: Instrument Type Dec 08, 2023 Jan 23, 2024 Feb 20, 2024 Mar 14, 2024 Mar 28, 2024 Apr 08, 2024 1-year Discounted 30.2 4.7 1.1 11.2 13.3 12.7 3-year Fixed Rate - 0.3 - 0.1 0.3 0.4 5-year Fixed Rate - 22.6 - 1.6 - - 3-year Variable Rate - 14.9 0.2 0.1 0.0 0.0 5-year Variable Rate - 43.0 43.3 76.9 19.1 9.5 Total 30.2 85.5 44.6 89.9 32.7 22.7 Source: SECP 6.2-b National Saving Schemes safety net to the general public, specifically senior citizens, pensioners, widows, differently- The Central Directorate of National Savings abled individuals, and the families of Shuhada of (CDNS) has long served the country as the sole war against terror, by launching and maintaining avenue for savings mobilization through a product mix of NSS, according to customer’s government securities called National Savings requirements. In this regard, the directorate has Scheme (NSS). The CDNS has fulfilled the launched two products, i.e., SARWA Islamic exchequer’s internal financial requirements Savings Schemes, a Shariah Complaint product, while assuring financial inclusion and extending and digital saving schemes with a total net social security to the marginalized segments of investment of Rs 78.0 billion. society. The CDNS holds a portfolio of Rs 3.2 trillion, making it around 14 percent of the The NSS's product basket ranges from country’s entire banking deposits, and caters to 3-month Short-Term Savings Certificates around 03 million customers. (STSC) to 10-year long-term Defence Savings Certificates. Table 6.8 depicts details of rates of CDNS is primarily oriented towards providing a return on different NSS products. 96  Capital Markets and Corporate Sector Table 6.8: Profit Rate on the Product Basket of National Savings Scheme (Per Annum) S.No Name of Scheme w.e.f. 10-04-2023 w.e.f. 24-03-2024 Maturity Period Tax Status 1 Defence Savings Certificates 14.87% 13.36% 10 Years Taxable 2 Special Savings Certificates/Accounts 17.13% (Average) 15.93% (Average) 3 Years Taxable 3 Regular Income Certificates 12.84% 14.76% 5 Years Taxable 4 Savings Account 18.50% 20.50% Running Account Taxable 5 Pensioners' Benefit Account 16.56% 15.60% 10 Years Tax exempt 6 Bahbood Savings Certificates 16.56% 15.60% 10 Years Tax-exempt 7 Shuhada Family Welfare Account 16.56% 15.60% 10 Years Tax-exempt 8 National Prize Bonds (Bearer) 10.00% 10.00% Perpetual Taxable 9 Premium Prize Bonds (Registered) 12.92%** 16.40%* Perpetual Taxable 10 Short Term Savings Certificates (STSC) STSC 3 Months 19.92% 19.40% 3 Months Taxable STSC 6 Months 19.64% 19.38% 6 Months Taxable STSC 12 Months 19.82% 19.00% 12 Months Taxable 11 SARWA Islamic Savings Schemes SISA - 20.50% Running Account Taxable SITA 1 Year - 18.54% 1 Year Taxable SITA 3Year - 15.25% 3 Year Taxable SITA 5 Year - 14.76% 5 Year Taxable * Effective from 10.09.2023, ** Effective from 09.03.2023 Source: Central Directorate of National Savings Table 6.9 provides the net investment under years, net investments across different products various NSS from FY2020 to FY2024. Over the have fluctuated. Table 6.9: National Savings Schemes (Net Investment) Rs million 2023-24 S# Name of Scheme 2019-20 2020-21 2021-22 2022-23 (Jul-Mar) 1 Defence Savings Certificates 92,783.1 (9,132.6) (10,440.0) (38,530.1) (24,658.1) 2 National Deposit Scheme - (0.0) (0.4) (0.0) - 3 Khaas Deposit Scheme (0.1) (0.2) (0.0) (0.2) (0.1) 4 Special Savings Certificates (Regd) 13,945.7 (6,327.9) (44,748.0) (79,014.8) (12,701.4) 5 Special Savings Certificates (Bearer) (0.0) (0.5) - - - 6 Regular Income Certificates 83,232.3 26,711.2 (10,563.3) (127,536.2) (187,710.7) 7 Bahbood Savings Certificates 83,380.0 2,549.4 16,628.9 (16,017.1) 36,580.0 8 Pensioners' Benefit Account 33,875.9 16,347.2 22,055.6 13,781.8 26,518.8 9 Savings Accounts 4,537.0 1,083.5 10,508.6 20,087.1 4,181.2 10 Special Savings Accounts 200,770.6 (39,659.1) (273,790.9) (197,457.1) (38,015.3) 11 Mahana Amdani Accounts (60.4) (47.5) 31.1 (100.6) (73.7) 12 Prize Bonds (171,109.9) (315,531.7) (81,803.7) 10,069.1 1,722.8 13 National Savings Bonds (137.0) - - - - 14 Short Term Savings Certificates 19,254.6 (20,362.2) 690.3 29,906.7 17,071.0 15 Premium Prize Bonds (Registered) 11,322.7 25,147.2 12,706.3 (2,155.1) (883.2) 16 Postal Life Insurance 628.0 (1,311.9) - - - 17 Shuhda Welfare Accounts 27.0 24.2 40.2 19.0 23.3 18 SARWA Islamic Savings Schemes - - - 5,082.0 71,610.8 19 Digital Savings Schemes - - - - 1,341.5 Grand Total 372,449.4 (320,510.9) (358,685.1) (381,865.4) (104,993.0) Note: Figures in parentheses indicate negative values. Source: Central Directorate of National Savings 97 Pakistan Economic Survey 2023-24 6.3 Commodity Futures Market Fig-6.6: Total Traded Value on PMEX (July-March) Pakistan Mercantile Exchange Limited (PMEX) 4.5 is the only one that provides a centralized and 4.08 regulated place for commodity futures trading. 4.0 PMEX offers a variety of futures contracts based 3.49 3.5 on different commodities, including gold, silver, Rs Trillion crude oil, currency pairs, and local agricultural 3.0 2.65 products, such as cotton, wheat, rice, and maize. 2.5 2.01 During July-March FY2024, 3.39 million lots of 2.0 1.75 different commodity futures contracts, including 1.5 gold, crude oil, and US equity indices worth Rs 4.08 trillion (Figure 6.6), were traded on PMEX, 1.0 FY2020 FY2021 FY2022 FY2023 FY2024 which is 14.5 percent higher than the same period last year. Source: SECP Box-II: Capital Market Reforms and Developmental Activities SECP has taken numerous steps in the ongoing fiscal year to support and develop conventional and Islamic capital markets. The detail is discussed below: Launch of Centralized Gateway Portal (CGP): Under the supervision of SECP, the Central Depository Company of Pakistan Limited (CDC), with the collaboration of all stakeholders, has successfully launched CGP, which enables the sharing of KYC information among multiple asset classes (such as securities, mutual funds, insurance products, etc.), resulting in a more efficient customer onboarding process and the removal of duplication in the submission of account opening documentation. Furthermore, account opening forms have also been rationalized, and various regulatory reforms have been introduced to simplify customer onboarding through amendments in the regulatory framework. Amendments in the PSX Regulations: To provide maximum facilitation to investors and promote ease of doing business for market intermediaries, various amendments have been included in the PSX Regulations, including application of Apostille Convention, 1961 to Customer Relationship Forms to facilitate foreign investors, provision of hearing opportunity and mechanism for handling appeals in case of disciplinary action taken by PSX against listed companies, and specifying functions performed by the Professional Clearing Member on behalf of Trading Only (TO) brokers. Adoption of Revised Timeline for IPO Applications: SECP has reduced regulatory approval processing times for listing applications and prospectus to 14 working days under section 172 of the Securities Act, 2015, and post-approval prospectus by PSX, the issuer is required to complete procedural formalities within 15 working days. Resultantly, this will facilitate companies to raise funds through an IPO within 29 working days from listing application submission. Introduction of New Category of Futures Broker: Amendments were made to Futures Brokers (Licensing & Operations) Regulations, 2018 by introducing an Agri-only category of futures broker with lower entry barriers and a sole focus on trading Agri-commodities. This initiative will help onboard an untapped investor base in rural areas to access the capital/commodity markets and contribute to the agricultural sector's documentation. Shariah Compliant Brokerage Model: To provide various avenues for new and existing brokers to provide Islamic brokerage services, a concept paper followed by draft amendments in the Securities Brokers (Licensing and Operations) Regulations, 2016, has been issued to obtain stakeholder feedback. Accordingly, reforms shall be made in the relevant regulatory framework to provide coverage to the model, thus paving the way for these specialized brokerage services to be provided in the capital market. Transparency in handling margins and deposits with PMEX: Amendments to the Futures Exchanges (Licensing and Operations) Regulations, 2017, specified treatment for investment and profit distribution on the margins and deposits of brokers/customers held with the PMEX to bring transparency in dealing with margins and deposits. Source: SECP 98  Capital Markets and Corporate Sector 6.4 Non-Banking Finance Companies Private Equity and Venture Capital Funds Non-Banking Finance Companies (NBFCs) Management Services provide similar services like banking and As of March 31, 2023, 13 NBFCs have been financial services to investors and businesses but granted licenses by the SECP to provide private do not hold a banking license. NBFCs are not equity and venture capital fund management subject to the banking regulations and oversight services. These NBFCs have successfully by federal and provincial authorities adhered to launched 07 funds, comprising 05 funds focused by traditional banks. The NBFCs include mutual on private equity investment, 01 funds as an funds, leasing companies, investment finance Alternative Fund, and 01 fund focused on companies, pension funds, insurance companies, private equity funds, venture capital funds, venture capital investments. The total assets of housing finance companies, modarabas, stock these registered funds stand at Rs32.3 billion. exchanges, investment advisory companies etc. Voluntary Pension Schemes: As of December Mutual Funds 31, 2023, the voluntary pension industry's assets Mutual funds pool money from many investors under management stood at Rs 61.0 billion. and invest the money in securities, such as Table 6.11 provides highlights of the pension stocks, bonds, Sukuks, and short-term debts. As fund industry. of December 31, 2023, assets under management of mutual funds stood at Rs 2,231.8 billion. Table 6.11: Voluntary Pension Schemes Money market funds dominate the industry with Status as of Description December 31, 2023 the largest share, that is,49 percent of the mutual Total assets of the pension industry 61 fund industry, followed by income funds (Rs billion) comprising 31 percent equity funds having an Total number of pension funds 24 Total number of pension fund managers 14 industry share of 09percent, and the remaining Source: Securities and Exchange Commission of Pakistan 11 percent by other categories. Investment Advisory Lending NBFCs Investment advisory is a type of financial service Lending NBFCs include leasing companies, that provides professional advice and guidance investment finance companies, housing finance to individuals and organizations regarding their companies, discount houses, and non-bank investment decisions. Currently, 27 NBFCs have microfinance companies. Table 6.12 states the licenses to conduct investment advisory highlights of each category as of December 31, business, including 19 Asset Management 2023. Companies, and 08 NBFCs have exclusive licenses for conducting investment advisory Table 6.12: List of Lending NBFCs services. As of December 31, 2023, the total Lending NBFC No. of Asset Base assets of discretionary/non-discretionary Companies (Rs billion) Leasing Companies 5 6.5 portfolios held by all investment advisors Investment Banks 29 99.9 amounted to Rs 547 billion. Number of entities Non-Bank Microfinance 39 194.7 and total assets of the mutual fund industry are Companies given in Table 6.10. Housing Finance 4 0.6 Companies Table 6.10: Mutual Fund Industry Discounting Companies 1 0.1 Total Total Assets Source: Securities and Exchange Commission of Pakistan Description number (Rs billion) of Entities Asset management / Investment 29 58 Real Estate Investment Trusts (REITs) advisory Companies Mutual Funds / Plans 345 2,232 REITs are investment schemes that often own Discretionary / non-discretionary - 547 and actively manage income-producing real portfolio Total size of the industry 374 2,836 estate. A REIT invests in physical real estate and Source: Securities and Exchange Commission of Pakistan distributes profits from rental income and/or 99 Pakistan Economic Survey 2023-24 capital gains to its unit holders. A REIT investor billion (66.17 percent) out of a total market owns real estate-backed units that sell like any capitalization of Rs 9,447.69 billion as of March other unit/listed security, enabling the unit 31, 2024. Trading activities were observed in the holder to invest directly in real estate. KSE Meezan Index (KMI). All Shares with a turnover of 15.8 billion shares valuing Rs 744.5 As a result of widespread outreach efforts by the billion, 6.4 billion shares valuing Rs 491.4 SECP, the total number of REIT Schemes billion in the KMI 30 Index, and 2.7 billion registered with SECP as of March 31, 2024, has shares valuing Rs 365.7 billion in the Meezan increased to 17. As of December 31, 2023, the Pakistan Index during July-March FY2024. aggregate fund size of these REIT Schemes is Rs 168.4 billion. Stakeholders continue to express Registered Shariah Advisors: Twenty-six (26) interest in REIT as a viable option for investing new Shariah advisors registered with SECP in real estate projects, as evidenced by the under the Shariah Governance Regulations, increase in the number of companies licensed to 2023, including three (3) Shariah advisory undertake REIT management services. companies during the July-March FY2024 period. Presently, one hundred sixty-one (162) 6.5 Islamic Finance Sector Shariah advisors are registered with SECP, The Islamic financial services industry including twelve (12) private limited companies comprises Islamic institutions such as that provide Shariah advisory services. Modarabas, Takaful operators, Islamic NBFIs, Islamic Pension Funds Shariah-compliant businesses, and Shariah advisors with Islamic instruments like Shariah- Islamic Pension Funds operate under voluntary compliant securities, Sukuk, Islamic commercial pension fund schemes. Currently, 13 pension papers, Islamic mutual funds, Islamic Exchange funds managing assets valuing Rs 38.9 billion Traded Funds (ETFs) and Shariah compliant are classified as Shariah compliant. In terms of REITs. size and number, they constitute 67.7 percent and 54.2 percent of Pakistan's total pension Islamic Capital Market funds industry, respectively. During July-March FY2024, SECP issued 02 Modarabas certificates of Shariah-compliant companies and 52 certificates of Shariah-compliant securities to Modarabas are a unique collective investment companies under the Shariah Governance model and Pakistan's pioneer Islamic financial Regulations, 2023, to develop the Islamic institutions. The Modaraba sector can be crucial Capital Market. Similarly, SECP issued in serving SMEs’ financial needs and certificates of Shariah compliance for Shariah- collaborating with other ventures as partners. As compliant securities/sukuk worth Rs 213.4 of December 31, 2023, 31 Modaraba companies billion, compared to Rs 107.7 billion in the same were registered, while 23 Modarabas are period last year. currently operating and are listed at PSX. As of December 31, 2023, the total assets of the There are 264 (50.38 percent) Shariah-compliant Modaraba sector stood at Rs 56.1 billion, which securities out of a total of 524 securities listed at comprises 1.6 percent of the NBFI industry. PSX with a market capitalization of Rs 6,251.35 Box-III: NBFC Reforms and Developmental Activities Amendments in the Voluntary Pension System Rules, 2005 (VPS Rules 2005) and NBFC Regulations 2008): To enhance the scope of the Voluntary Pension System (VPS) framework and allow employers, both in the public and private sectors, to offer fully funded defined contribution pensions in a fail-safe environment to their workforce, the SECP notified amendments in February 2024 to VPS Rules 2005 and NBFC Regulations 2008. 100  Capital Markets and Corporate Sector Revised Digital Nano Lending: SECP Circular 15 of 2023 was issued on September 25, 2023, introducing the pricing cap limit, rollover limit, and aggregate liability limit for digital nano lenders. Furthermore, the definition of digital nano lending was amended by reducing the maximum loan tenor to 30 days from 90 days, and the definition of APR defined in clause 9(3) of Circular 15 of 2022 was also re-defined. Guidelines for NBFCs engaged in Digital Lending on Advertisement & Call Centres Management: Circular 08 of 2024 provides comprehensive guidelines for advertisement and call center management for NBFCs engaged in digital lending. The guidelines are introduced for responsible and ethical marketing practices and encourage NBFCs to adopt transparency and honesty while advertising and adopting best practices for their call center management. Amendments in the Corporate Restructuring Companies Rules, 2019 (CRC Rules): The amendments in the CRC Rules have been notified to facilitate the acquisition of financial institutions' non-performing assets and to help revive businesses through restructuring schemes. Promulgation of Shariah Governance Regulations, 2023: The Regulations provide legal support to "Islamic financial institutions" that offer Islamic financial services, including Shariah-compliant companies and Shariah-compliant securities. New regulations require companies to obtain a Shariah compliance certificate from the SECP. Holding the 1st International Conference on Islamic Capital Markets 2023: SECP, in collaboration with the Accounting and Auditing Organization for Islamic Financial Institutions, hosted the first international conference on Islamic capital markets. The conference aimed to define the future direction of the Islamic capital markets and its fast-changing dynamics. Amendments to the Modaraba Companies and Modaraba Rules, 1981: The Modaraba Rules have been amended to adopt the new terms "statement of financial position" and "statement of profit and loss and other comprehensive income” and a new format of the auditors' report. The amendments will bring consistency to the country's financial reporting. 6.6 Corporate Sector ii. Introduction of Unique Document Identification Number (UDIN): SECP has Company Incorporation made it mandatory for auditors to mention The SECP has introduced various reforms the UDIN on all audit reports issued under periodically to facilitate and simplify the the Auditors (Reporting Obligations) company incorporation process. Consequently, Regulations, 2018, to prevent the the number of new company incorporations counterfeiting of audit reports. witnessed notable growth, as 20,810 companies iii. Amendments in Associations with were incorporated with capitalizations of Rs Charitable and Not-for-Profit Objects 33.0 billion during July-March FY2024. Most Regulations, 2018: SECP has amended the companies were registered in Information regulations vide S.R.O. 1513(I)/2023 to Technology (2,700), Trading (2,475), and ensure that Islamic donations shall not be Services (2,299). received, invested, or utilized by any Section To facilitate the corporate sector and ease of 42 company in any way that is contrary to doing business, SECP has taken the following the Shariah principles by the initiatives during FY2024: companies/associations licensed u/s 42 of the Companies Act, 2017, which would i. Secured Transaction Registry: SECP promote ease of doing business for the operationalized a fully automated 24/7 companies enabling them to raise capital ‘Secured Transactions Registry (STR)’ to from a broader range of investors. register security interests/charges on iv. The Unlisted Companies (Buy-Back of unincorporated entities. During July-March Shares) Regulations, 2023: SECP has FY2024, more than 23,900 statements were issued the regulations, which provide the filed in STR. procedure and mechanism to be adopted by 101 Pakistan Economic Survey 2023-24 unlisted companies to buy back and cancel insurance sector from July 2023 to March 2024 their own shares, as well as the submission are as follows: of the final report to the registrar after the buy-back process is completed. It is believed i. Launch of a 5-year draft strategic plan for that the new mechanism will boost the the insurance sector: The SECP identified confidence of investors and will provide an challenges of the insurance sector in easy exit option to the shareholders of such consultation with all stakeholders and companies. formulated the 5-year draft strategic plan. The plan covers a comprehensive v. SECP Integrations under Pakistan roadmap/sketch for the growth of the Regulatory Modernization Initiative insurance sector with a detailed action (PRMI): The Prime Minister’s Office, matrix for the next five years. The ultimate through the Board of Investment (BoI), goal is to strengthen the three pillars of the launched PRMI to reduce businesses' entire insurance ecosystem, i.e., compliance burden while improving the policyholders, insurance providers, and regulatory regime's effectiveness. Under insurance intermediaries. PRMI, SECP has successfully integrated with the Pakistan Software Export Board ii. Holding of International Insure Impact (PSEB), Special Technology Zone Conference 2023: The SECP as committed Authority (STZA), and Pakistan to its vision of committed to its vision of Engineering Council (PEC). developing an inclusive, innovative, and sound insurance sector by 2028, the National vi. Launch of eZfile: A new e-Filing Portal: Insure Impact Conference 2023” to SECP has launched a new corporate registry, mainstream the discussion around insurance eZfile, a more sophisticated, advanced, and services and products and act as a catalyst user-friendly online portal for company for revitalizing Pakistan's insurance registration and post-incorporation filings. industry. The eZfile portal offers comprehensive ease to its users while incorporating and filing iii. Implementation of IFRS 17 – Initiation of statutory returns through built-in checks and System Design Phase (Phase III) and pop-up guidance messages. announcement of the date of implementation: For the implementation of vii. Awareness Sessions held by the SECP: In IFRS 17 (Insurance Contracts) in Pakistan, a dedicated effort to strengthen compliance the SECP envisaged a four-phase approach, practices and foster capacity building, the namely (i) Gap Analysis; (ii) Financial SECP has held numerous awareness Impact Assessment (FIA); (iii) System sessions in various cities of Pakistan. During Design and Methodology; and (iv) Parallel July-March FY2024, 117 sessions were held Run Implementation. During this period, the with companies’ representatives, chambers, SECP initiated Phase III of implementing lawyers, consultants, and other stakeholders IFRS 17 and announced the date of to encourage corporatization, promote implementing IFRS-17 as January 1, 2026. statutory compliance, and create awareness for reforms to facilitate the corporate iv. Issuance of detailed requirements for stakeholders. grievance handling mechanisms for the insurance sector: These requirements align 6.7 Insurance Sector with other financial sectors and international best practices to ensure effectiveness, The insurance sector in Pakistan comprises robustness, and uniformity in the grievance- eleven active life insurers (including three (3) handling function to protect policyholders. family Takaful operators), thirty active (30) non- These include formulating a grievance life insurers (including three (2) general Takaful handling policy, maintaining a centralized operators), and one (1) state-owned national system, defining acceptable complaint reinsurer. Significant achievements in the modes, categorizing complaints by 102  Capital Markets and Corporate Sector criticality, setting resolution timelines, the energy sector, stability on the economic and communicating with policyholders, raising political fronts, and external sector stability. The awareness about grievance handling PSX has been attracting domestic and mechanisms, monitoring for improvement, international investors due to its consistent and reporting complaints data. positive trends. This positive momentum is expected to continue in the upcoming year Concluding Remarks because of the improved economic situation and The equity market indicators, primarily the favorable prospects for foreign investment. benchmark KSE-100 index of PSX, showed a Additionally, the anticipated IMF program and significant increase of 62 percent during the the reforms and development activities fiscal year 2024. This growth can be attributed introduced by the SECP are expected to boost to the IMF’s SBA program, structural reforms in investor confidence further and sustain market momentum. 103 104 TABLE 6.1 NATIONAL SAVINGS SCHEMES (NET INVESTMENT) Rs million 2023-24 Name of Scheme 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 (Jul-Mar) 1 Defence Savings Certificates 16,620.00 10,743.60 57,171.00 92,783.09 (9,132.62) (10,439.99) (38,530.09) (24,658.05) 2 National Deposit Scheme (0.70) 0.10 (0.03) - 0.00 (0.36) (0.02) - 3 Khaas Deposit Scheme (51.40) (0.20) (0.04) (0.05) (0.24) (0.02) (0.15) (0.07) 4 Special Savings Certificates (R) (39,344.60) (51,180.10) 31,842.50 13,945.72 (6,327.88) (44,748.00) (79,014.78) (12,701.39) 5 Special Savings Certificates (B) (0.80) (0.60) - (0.01) (0.50) - - - 6 Regular Income Certificates (20,950.70) 8,726.30 142,088.10 83,232.25 26,711.24 (10,563.31) (127,536.17) (187,710.67) 7 Bahbood Saving Certificates 57,432.10 45,395.30 119,573.10 83,379.96 2,549.42 16,628.89 (16,017.10) 36,579.98 8 Pensioners' Benefit Account 18,716.70 21,504.40 43,367.40 33,875.95 16,347.15 22,055.63 13,781.81 26,518.82 9 Savings Accounts 4,684.40 3,413.00 (166.20) 4,536.97 1,083.53 10,508.61 20,087.07 4,181.16 10 Special Savings Accounts 65,246.60 59,939.20 (132,393.50) 200,770.58 (39,659.08) (273,790.85) (197,457.07) (38,015.27) 11 Mahana Amdani Accounts (55.20) (46.70) (73.80) (60.42) (47.52) 31.12 (100.55) (73.69) 12 Prize Bonds 97,791.60 101,575.70 40,432.10 (171,109.88) (315,531.72) (81,803.74) 10,069.07 1,722.80 13 Postal Life Insurance 2,529.80 875.50 1,248.40 627.96 (1,311.91) - - - 14 National Savings Bonds - - - (137.00) - - - - 15 Short Term Saving Certificates 2,077.40 560.60 761.00 19,254.58 (20,362.16) 690.34 29,906.68 17,070.97 16 Premium Prize Bonds (R) 2,921.70 2,323.20 2,820.00 11,322.72 25,147.19 12,706.32 (2,155.11) (883.18) 17 Shuhda Welfare Accounts - - 42.1 27.02 24.19 40.24 19.00 23.33 18 SARWA Islamic Savings Schemes - - - 5,081.97 71,610.78 19 Digital Savings Schemes - - - - 1,341.49 Grand Total 207,617.0 203,829.1 306,712.0 372,449.4 (320,510.9) (358,685.1) (381,865.4) (104,993.0) - : Not available Source: Central Directorate of National Savings (CDNS) Figures in Parenthesis represent negative value 75 TABLE 6.2 MARK UP RATE/PROFIT RATE ON FEDERAL GOVERNMENT'S DEBT INSTRUMENTS S. No. Name of Securities Coupon/Profit Rates Remarks Tax Status 1 Pakistan Investment Bonds (PIBs) Fixed-rate PIBs 3-years maturity 14.00% 3-years PIB first issued on 15-Feb-24 5-Years maturity 14.00% 5-Years PIB first issued on 17-Jan-24 10-Years maturity 14.00% 10-Years PIB first issued on 10-Nov-23 15-Years maturity 10.50% 15-Years PIB first issued on 16-Apr-20 20-Years maturity 11.00% 20-Years PIB first issued on 19-Sep-19 30-Years maturity 11.00% 30-Years PIB first issued on 07-Jan-21 Profit taxable Floating-rate PIBs fortnightly coupon reset and quarterly coupon payment; issued 2-years maturity coupon rate linked to 3-month t-bill on 21-Sep-23 auction's weighted-average yield 3-years maturity Quarterly coupon reset and payment; issued on 19-Oct-23 5-Years maturity For 5- and 10- year floating rate PIBs, coupon reset and coupon rate linked to 6-month t-bill payment are half yearly; 5- and 10- year floating-rate PIBs were 10- Years maturity auction's weighted-average yield issued on 07-Feb-2024. 2 Government Ijara Sukuk 1-year Variable Rental Rate Sukuk rental rate is benchmarked to 6-month t- Cut-off margin is -100 BPs; first issued on 04-Dec-23 3-year Variable Rental Rate Sukuk bill's auction weighted-average yield Cut-off margin is -21 BPs; first issued on 04-Dec-23 adjusted with margin set on initial auction Profit taxable 5-year Variable Rental Rate Sukuk Cut-off margin is -10 BPs; first issued on 04-Dec-23 1-year Fixed Rental Rate Sukuk 22.49% First Issued on 09-Oct-23 3-year Fixed Rental Rate Sukuk 16.19% First Issued on 04-Dec-23 5-year Fixed Rental Rate Sukuk 15.75% First Issued on 04-Dec-23 Note: Federal Government debt securities auctioned by DMMD, SBP Source: State Bank of Pakistan 30-year PIB Fixed is being offered withh issue date of 07-Jan-21. However, there has been no issuance so far. The Securities issuance status is as of end March, 2024. 76