- Business sentiments ending on good note but coming year will be tough
Interview with Muhammad Azam Khan — Economist/Capital Market Expert
[box type=”shadow” align=”” class=”” width=””]Profile:
Muhammad Azam Khan has more than 21 years of professional experienced (19 years in Pakistan financial sector including capital market with Primary and Secondary market activities), Mutual funds, Equity brokerage (Local and International), Block deals & Corporate Finance.
Since 2008, he has been working as CEO/Nominee Director of leading equity brokerage houseproviding expert advisory services to equity desk of major Institutions (Local and International both, portfolio management and portfolio advisory of high net worth individuals (Local and International), administrative, operational, research, accounts/finance, compliances and sales &marketing objectives in the financial world of Pakistan. Mr. Khan started his professional career with international exposure at Mashreq Bank Dubai in a highly professional environment with dedication and commitment. Subsequently, he contributed his skills in the growth and development of Atlas Capital Markets, a subsidiary of Atlas Investment Bank Limited.
Muhammad Azam Khan is one of the pioneers to explore an idea and initiate online trading platform in Pakistan’s capital market and convinced stakeholders and old manual equity trading investors to divert towards this revolt which was not an easy chore. Furthermore, Mr. Khan enjoyed rendering his abilities as “Chief Operating Officer” at Standard Capital Securities Private Limited and brought structural reforms in the institutions and succeeded comfortably with effective exit strategy before the financial crunch of capital market in 2008. He had developed Sunrise, a complete brand equipped with diversified expertise of human resource working passionately.
He started his career with Bhayani Securities Private Limited (formerly Kausar Abbas Bhayani Securities) as “Research Analyst” way back in 2001 and then joined Atlas Investment Bank Limited in Equity Research and Corporate Finance Department as “Investment Analyst” in 2004, later was promoted as a “Senior Investment Analyst” and assigned to handle International Corporate Client (JP Morgan Chase & Co) with other Local Corporate Institutions.Muhammad Azam Khan is very proactive internationally and within Pakistan through his activities. He has attended conferences as guest speaker, delivered lectures in seminars and other achievements. He organized cricket tournament between Mutual Funds Teams v/s Brokerage firms in 2010 held at Bahadurabad, Karachi, Pakistan. He attended Seminar On “Global Financial Crisis” in 2011 held at Dubai, UAE,delivered lecture on “IMF Package and Its Impact” in 2013 held at Dubai, UAE. He was a Guest Speaker on “Pakistan Capital Markets” in 2014 held at Harvard University, United States of America. Attended the “Marketing and Products” Round Table Conference in 2015 held at Sri Lanka. Attended “Capital Market-The Life Line for Economy” Conference in 2016 held at Malaysia. Attended “Role of Research in Investment Decisions” Conference in 2016 held at Singapore. Sunrise Capital was Winner of 3rd FPCCI Achievement award under his headship in 2016 held at Karachi, Pakistan. He was Guest of Honor & Expert Speaker on Crisis Management Training Workshop conducted by Corporate Forum in 2016 held at PC Karachi, Pakistan. Achieved Award for Excellence from National Higher Education Conference in 2016 held at Karachi, Pakistan. MOU signed with ICMAP to Joint venture on every forum as Partner and hiring of passed out students with Annual Training to become Stock Market participants.Mr. Khan was invited by “Allworld Harvard in 2014” and they recognized his contribution and progress in Pakistan’s capital market and acknowledged him “The best and fastest escalation entrepreneur” of Pakistan’s capital markets.[/box]
PAGE: How would you comment on the performance of capital market during 2021?
Muhammad Azam Khan: Currently Pakistan Capital market is used as a tool to show government progress through electronic and social media, further the main participants of PSX also use this forum to manipulate and force government to accept their business conditions without any action from regulators otherwise there would be zero growth in our capital market since the disqualification of previous democratic Prime Minister. Since 1947, we have only 250,000 investors till July 25, 2018 with market capitalization of $100 billion in 2016 but unfortunately till now we have only 120,000 active investors including foreigners individual and corporate. On the other hand Bangladesh after the independence in 1971 from Pakistan has 4.5 million capital market investors and this is only because of the wish to control Pakistan Stock Exchange from the few known investors and their appointed staff posted in PSX, CDC and NCCPL.FY 2017/18/19/20 and now 2021 is not lucky for PSX investors because of cut in GDP growth from 5.5% to almost in minus then expected till FY23 to 3.5% and this is something we have witnessed first time in the last 74 years of Pakistan history.
A negative GDP of -0.40% from the sitting government, Interest rates double from 5.75% to 13.25% now just eased off to 9.75% because of Covid-19, CPI inflation from 3.5% to 12% and the most important Pak rupee devalued by almost more than 50% which to add pressure on debt by Rs 6000 billion. Even in this FY22 till date the interbank dollar is up by 13% and in open market up by 15% which further has added pressure on debt by Rs 2550 billion.
July 25, 2018 was the general election day in Pakistan and at that time the PSX 100 Index was at 42,500 with a market cap of $60 billion but after taking regulatory actions from regulator which found serious irregularities by main investors including very heavy tax evasion, the Index shrank to its actual position to 28,500 levels in August 2019 with a market cap of $42 billion and Pakistan lost almost $18 billion in just 13 months.
There is no major development in the capital market of Pakistan for 2 years and we have witnessed this zero development for many years as far as new products and options are concerned. The only focus is to develop regulatory frame work which subsequently increases the expenses of exchange including all other regulator like SECP, CDC and NCCPL that’s why sometimes it feels, Pakistan capital market is “Overregulated”.
FY17/18/19/20 and now 21 are zero performance years for all investors and especially there is big loss for the Chinese investors who took first 40% than 20% PSX shares at the rate of Rs. 28.75/- per share.
We hope for the better progress of this current government, no doubt there are lots of challenges faced by this government but as a Pakistani we all wish for successful, secure and progressive Pakistan. Pakistan capital market has huge potential to perform as compared to regional markets but needs to be independent from the hands of some known manipulators called investors and their own regulatory staff.
PAGE: Your views about the government policies for the financial sector:
Muhammad Azam Khan: Since long, this is the biggest concern for local and international investors in Pakistan. We don’t have a specific policy not only for financial sector but for any sector. Policies consistency is the main reason for business projection and expansion.
With this sitting democratic setup the confidence on government policies is like if the discount rate comes down to zero then I believe there will no investment or expansion here in Pakistan because investors are confused about government change in policy decision within 24 hours and running a 200 hundred and 20 million people country like running a home on daily basis. The whole financial sector stands on interest rates which result in the growth of any country but unfortunately here we had treated discount rate like ping pong ball.
Last 24 months witnessed from 5.75% to 13.25% and then down till 7% due to Covid19 whereas other countries cut it till 0% to facilitate their industrialists, investors and general public. Now again we are on rising trend in this FY22 and stand at 9.75% as the Covid19 panic has dissipated which is still shocking to all sectors. As per my opinion Pakistan financial sector is over regulated and inconsistency in policies which zero international investment since very long.
Every finance minister has his own team which implements or twists policies according to their favor and we had changed three finance ministers in last 36 months.
Pakistan has too much potential in financial sector with this rapid increase in population. Till 2050 Pakistan population would double and would have impact on growth of all sectors especially the financial sector.
PAGE:Your views on the impact of inflation on business:
Muhammad Azam Khan: Inflation affects an economy in several ways. Thus, it impacts every walk of life, including businesses. Inflation refers to the increasing prices of goods and services. It means the purchasing power of a currency decreases.
Controlled inflation is not always bad for an economy. Businesses flourish when inflation rates are under control. However, negative inflation or hyperinflation can cause severe economic problems.As inflation impacts an economy and individuals get affected, every business in that economy gets affected. Businesses may face severe consequences from increased costs of production to changing borrowing costs.
While everybody is impacted by inflation, small businesses appear to get it the worst. As noted earlier, the goods and labor needed to run a business will become more and more expensive as inflation occurs. This causes small businesses to have to raise their prices in order to keep their business profitable.
Rising prices and an increase in demand may lead to higher costs of raw materials. Many materials needed to run a small business may even become more difficult to come by as manufacturers face difficulty keeping up with their consumer’s needs.
As inflation affects everybody in the economy, a small business may need to raise their employee’s salaries in order to continue to pay them a livable wage. Keeping up with an increase in the prices of materials needed to continue business and granting employees a raise can cause a number of financial issues for a small business, creating a need to make difficult decisions. Small businesses may have to raise their prices or let go of valued employees in order to keep their business profitable and running.
As small business faces a need to raise their prices, they may lose valued business. As stated before, inflation impacts everybody in the economy. Because of this, the business’ customers may not have the ability to purchase as many goods or services from the small business as they were once able to.We have double digit inflation in last 6 month from 6% to 12.5% which result less in purchase power effect on demand side and less production for more few months. Negative impact of inflation can affect in many ways like:
- Increased Production Prices
- Increased Borrowing Costs
- Decreased Sales
- Decreased Purchasing Power
- Foreign Exchange
- Increased Costs of running a Business
- Inventory Shortages
- Employee wages demands
In the last one year there is increase in fuel prices by 100%, electricity by 100%, gas shortage of 100% and off course there is paucity of water supply to textile sectors. 99% of Pakistan’s big groups are independent and don’t trust the government supply especially when we talk about electricity which result on higher cost as private production by any means cannot be compared with government supplies. Since 1947, Pakistan’s population is facing or is trapped in simple domestic needs like water, gas, electricity and fuel issues. They are still far away from basic necessities of life which they have a right to have it. They don’t bother GDP growth, current account deficit, fiscal deficit, rupee devaluation and so on but have a right of subsidized regular commodities. With this increased inflation we may face major cut down in production in sector half of this FY.
PAGE:What is your take on the business sentiment during 2021?
Muhammad Azam Khan: It appears that 2021 is ending better than it started – or that’s how it feels for most middle market executives. However, it’s not as simple as it seems on the surface. A complicated business environment defined by supply chain disruption and rising inflation has put a damper on the unhampered highs executives were feeling at midyear. How macroeconomic conditions and government policies have impacted their businesses. While the negative impact of the COVID-19 pandemic is receding, new worries have entered the picture – including the availability and rising costs of raw materials and challenges in hiring and retaining talent.
Most of the big investors are doing well, profitable, and operating efficiently, but revenues aren’t as high as they thought they were going to be because of interest rates, labor and supply chain costs. Still, even if their main revenue and volumes have contracted, companies tend to be profitable because managing through COVID taught them to be very efficient.Inflation is main reason to distract business at all sides and there was more disaster when discount rates were increased and here we are facing both problems simultaneously.
Policies are uncertain and government is always in problem when it comes to completing its tenure. One can make monthly or yearly strategy in Pakistan for new business or business expansion. This year is much better than last year after corona pandemic but inflation affects the purchasing cost and result with less production. Pakistan consumer market is bigger after India but it’s an undeveloped country and government should subsidize commodities for people for their basic food items need.
2022 can be very difficult for business. Pakistan is a golden bird in this region and we have witnessed every one eying on it as we have very much potential and growth in all sectors of businesses but as a nation we have to respect and realize the potential of our beloved Pakistan and only for once we need serious and sincere leadership for this land of opportunity.