Wednesday, August 25, 2010

Summers Summerised!

Hmm…ok so life has been a bit busy these days on my side: joined an internship at a pharma multinational and things are really going good. So what next? Could I expect a job or something from the new place? I could only hope to get one! Well anyways, life goes on and so does work. There are ample of opportunities out there and one should not commit oneself to sticking at places where they feel down. “Employability” should be the motto: a place where an employee is empowered means everything to me when I think of a proper “work place”.

Apart from work life discussion, there are things in life that I am really led down by. Its my university in specific that Im talking about currently. August 2010 showed me one of the ugliest sides of Szabist when everything turned out against me for doing nothing wrong. I had recently completed my bachelors in May: yes guys I was finally a graduate. It just couldn’t have been better then this! Life was good. However, a few days later, I had to experience the sluggish economy impacts in the form of bad job market, reference issues (parchi as you may call it), and the never ending problem of transport, in the form of heavy loaded busses! Argh! Life isn’t so easy after all.

What I decided then, was to connect again with contacts I made through previous internships at Siemens and PSO. I had a number of a few top level people, who were nice to me during the tenor of internship and had offered me full support when I graduate. Well, here I was, standing at Siemens SITE again, hoping that the business unit manager who headed me would allow me in. much to my dismay, things did not turned out the way I thought. I kept waiting for 2 hours and the response came out negative: I was asked to communicate only through email. Not considering it as a lost hope, I decided to continue my approach of reconnecting with “good people” I found through internships.

Apart from my continuous job hunt process, I had heavily relied on EDC (even though I’ve had bad experiences previously – got disapproved from internships even after clearing all the interview requirements!) Oh well, this is life I guess, especially when it comes to Pakistan =). God Bless us all and our Beloved Country.

I wasn’t able to get hold of any jobs through EDC, though it helped me out in getting an internship at the pharma company I mentioned about above.

So I was talking about my bad experience at Szabist. Yes, it was a bad one, and most importantly for doing nothing illegal. Actually, I decided to start off with MBA sooner than my batch mates, i.e. in Summers of 2010. I came across and interesting course, Investment Banking, which I thought would really help me out in getting to know about the mechanics of investment firms and how profit is actually made. Although I did come across various new information that doubled my love for making money through stocks, yet the environment and tone of the study was purely bookish. I wanted some real exposure, possibly some investment firm practical mechanics: how they work and make judgements about stocks etc.

Well, back to the bad experience story. My life became miserable when I found out in August that a new MBA policy had been devised by the university: a 1.5 year MBA program with some modifications in the grading policy. It was easier now to clear a course than before. But, the twist in my life came when, despite the fact that I had graduated in May 2010 and the policy practically applies to all my batch mates (and off course, me) I was deprived of it. Therefore, I had do a 2 year MBA with a grading plan of the previous batch.. This was just insane! I couldn’t believe how the administration could do such a thing to me, and the other two along who took courses in summers. We insisted on changing our ids (09XXXXX) with (10XXXXX), but a big NO was our fate.

It was not until we finally decided to go to the dean to decide our fates. He then finally approved our MBA 1.5 year plans, but with the old grading policy. Now how good is that? Is it a deal worth it? “Nothing else could be done” was the reply when asked. Is this fair? I don’t think so. But the admin doesn’t seem to realise.

Well, this is our (my) fate as of now. We (I)) have to follow the rules. Rebel is not an option for us (me), or else its dismissal. I hope things do turn out well when I join back in Spring 2011.


Wednesday, July 28, 2010

The Equities Market in Pakistan

The equities market plays a very important role in any economy to generate capital requirements. It is an essential part in mobilizing funds for medium and long-term debts that help firms emerge. The growth of Pakistani equity market however, has been stagnant and has not been fully utilized in its years of performance.

Historical evidence and analysis shows that the equities market in Pakistani gained importance and much appreciated growth in the 1960’s, but later the momentum was disrupted due to the political uncertainty and nationalized policy of the 1970’s. The economic growth however, changed its route to private equity investments in the 1980’s which helped the overall market sentiments regarding equity investments to improve.

It was only in 1990’s when the market regained its strength when the equities market was opened for foreign investment and inflows. The measures, stated by Hussain and Ali Qasim (1997), describe the measures taken for the revival of the stock market in Pakistan. The first states the opening of the market for foreign inflow of funds in the form of investments to the market. The second is the process of privatization of public entities. The third mentions the deregulation, and privatization of the economy which takes into account the privatization of commercial banking industry. And fourthly, liberalization of foreign exchange restrictions which also includes the freedom to Pakistani nationals of obtaining dollar accounts in banks.

However, due to political instability and violence, the authors state that developments were at a halt and the markets were not able to emerge properly. However, the market did perform in the midst of the turmoil and was able to generate new IPOs particularly through the listing of Pakistan Telecommunications Company (PTC) and Hubco Power.

The tide of political violence remained till the late 90’s when the power shifted to Nawaz Sharif. Some of the measures that the government took in 1997 are stated by the two authors were the exemption of CGT (Capital Gains Tax) till the year 2001, tax exemption for bonus shares issued, tax removal on dividend payout for all mutual funds activities, tax exemptions for foreign investments in government and corporate securities, and increase in sectoral investment limit by provident and pension funds from 10 percent to 20 percent with investment ceiling increased from 1 percent to 5 percent in one company.

The market in the period Musharraf era progressed like never before. The market reached up to new heights and the economic indications of the country set waves across the international investors, providing them reasons to invest in the equities market of Pakistan. Much of the stocks traded were at a discount that led foreign capital into the country.

Presently, the equities market is performing exceptionally well. Recently, the IPOs for Wateen were successfully launched, where the offerings for the share allotment oversubscribed, indicating small investors willingness to invest in new public companies. The market index as of July 3, 2010 was 9730.

The Importance of Primary Equity Market for Pakistani Markets

Pakistan experienced growth in the equities market during the past five years from 2003 – 2007. The importance of the growth can be judged by the fact that the economy progressed in the previous years leading to growth and economic development. The growth of the equity market leads to much liquidity required by public companies, whose aim is to increase profitability through investments. Thus, the importance of the primary equities cannot be ignored and should be marked as the backbone of the economy. The country needs to pace up expansion of the market in terms of its size and volume, for which the primary equity would pay an enormous role.

The market however, after the growth years entered into the cycle of recession, where stock market slowed down, starting from the year 2008 which eventually lead to a liquidity crisis and the KSE literally at a halt for three months. The year 2009 saw the least number of IPOs emerging for capital funding requirements. Only three public offerings (IPOs) were seen in the calendar year 2009 in the midst of depressing values and investor risk aversion strategies after one of the worst financial crisis that lead to many losses for the small investors, the primary target of IPOs.

With no offerings made in the first half of the year, power companies, in an attempt to fill out capital shortages for power generation, issued IPOs to tap the local market for investment. However, a low turnout was seen by Mr. Muhammad Sohail, CEO of a leading Top line Securities Company, where he mentions that only 20,000 investors showed interest from a base of 250,000, according to the CDC sub accounts information available. This shows that more than half of the small investors had suffered huge losses in the stock market crash.

It was seen in the KSE in contrast to the bearish 2009 market position, where only 3 IPOs were offered to public, 10 IPOs were launched in 2008, with many companies being financial sector firms raised a total of Rs 7.4 billion. In the past, 2004 and 2005 were the best years in terms of number of IPOs. A total of 17 IPOs were floated in 2005 to raise an amount of Rs 36 billion. The three IPOs offered in 2009 were worth Rs 1.1 billion in comparison to 10 IPOs worth Rs 17.7 billion issued in 2008, and Rs 36 Billion in 2005. Reviewing from the figures only, the extent of crisis in 2009 in the stocks can be visualized.

While comparing the volume of issuance of IPOs of this decade from the 1990s, we clearly see a decline in the issuance. The period of the 1990s was one of the golden times for issuance of IPOs, where many company were starting off its operations and decided to approach the money market for capital funding, causing the listed firms at KSE to increase from 487 in 1990 to 767 in 2000. We review that offerings in this decade fell by two third in comparison to the 1990 period. Thus, with the information present and analysis made, it is important to review macroeconomic policies and set up an environment for foreign and domestic investment to allow growth prospects for the Pakistani equity markets.

Moiz Damani is currently a student at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, pursuing an MBA degree with specialization in Finance.

Friday, July 16, 2010

An Introduction to Primary Equity Markets

The equity market is a term used in synonymous to the much popular and layman term – The Stock Market. The equity market in any country plays a vital role in providing liquidity to companies that want to raise capital for investments in company infrastructure and development, or to invest in some portion of the economy that would yield the best returns to the company itself and its shareholders.

The equity market or the stock market is a bridge that narrows the gap between investors and issuers. It is a market through which provides access to companies to capital, and in turn, to the investors in the form of holdings in the ownership of the company; thus, providing hope of capital gain in the form of price appreciation of the shares of the company or through other modes such as dividends, bonus and rights issuance.

The equity market is divided into two sub forms: the primary equity market and the secondary equity market. The primary equity market is one where new companies offer the market new shares, termed as – IPO (Initial Public Offering). The purpose of this initiative of distributing new shares to the market is, as explained, to generate new capital for the firm/company from pool of investors. IPOs are used as a source to generate funds for long-term debt purpose as opposed to the short-term debt provided by banks/financial institutions. Similarly, other ways of primary form of equity issues are through Rights issue, and offer for sale.

The concept of IPO is usually to allow ownership of the company to mass public in general to utilize and accumulate pool of funds available from small investors. However, in the United States, the remaining shares that have not been consumed by the general public are offered to banks/investment firms willing to buy those remaining shares. These banks/firms are called underwriters. At times, single major companies are also the ones allotted all the IPOs on the preferred price by the company that releases it, thus giving no chance to the general public to invest.

Moiz Damani is currently a student at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, pursuing an MBA degree with specialization in Finance.

Monday, June 28, 2010

The Development of Debt Market in Pakistan

The article summarizes views of Mr. Khurram Baig, in his article, "The Development of Debt Market in Pakistan", which discuses the bond market of Pakistan and covers the issues and problems that it has been facing since years which are some of the leading factors hampering the overall debt market. The equity market, in contrast, has progressed all over the Asian region; but the debt markets in Asia, and in Pakistan, have not been able to develop.

Even though the size of the debt market in Pakistan is 43% of its GDP, much of the issues have been done by the government securities, which have not been able to set a good benchmark for other private corporations for launch a similar type of issues. Although the need for corporations and entities for a secure term financing is essential, the article mentions reasons such as lack of capital, expertise and trained staff, which is hampering these corporations to do so.

The demand for a debt market has emerged effectively now, considering the need to gather together the savings from retail, large individual and institutional investors for long term financing. However, there are some problems identified by prominent leaders, which are causing a slow growth.

One of the problems is that the short term bonds introduced by the government are causing problems in setting benchmark for the secondary market trading. It is not possible to place a consistent bid as a result of different profit payments. Another problem identified is the TFCs not being considered as an investment for banks while displaying list of investments for SLR to the State Bank.

In an attempt to liberalize and deregularize, the need to spread awareness to the retail investor regarding many saving schemes such as the NSS is important. Also, different schemes should yield different benefits in the form of returns to avoid clashes. The attempt to introduce foreign currency accounts for non-residents, and exemptions to it from zakat, and other taxes is a positive approach inn favor of the debt market.

However, there are some limitations specified in the article: the first being the small size of the market. For international investments, small markets are not a lucrative opportunity to invest. The fact that only a few private corporations are credible to issue bonds and the secondary market not being liquid enough makes it really a harsh environment for investment. Lack of regularity and a set framework for both issuers and investors in debt market is also a reason for its slow progress in Pakistan. With lack of proper accountability of companies within, it is difficult for the investor to trust issuers where the level of risk rises.

Another reason is also the lack of a credit rating system in place, and the mixture of Islamic and conventional mode of financing, which yields different returns and thus, causes problems for investors, with a varying/unclear benchmark for returns.

Apart from the problems specified, the country risk is also one of the major factors for lack of investment in the bond markets. With credit ratings below benchmark, Pakistan’s debt market is always skeptical because of low For-ex reserves. There is an option of hedge funds to invest in the discounted price bonds, but then the quick possibility of withdrawal of funds from the market make the situation tenser for Pakistan, considering low reserves. Also, the cost of capital has risen tremendously considering the servicing high interest rates.

With the removal of TAP systems, introduction of new debt instruments such as FIBs and STFBs, along with the initiation of secondary market for each, and also, the auctions for OMOs regularly in an attempt to further widen the secondary market, the opportunities for foreign investors have increased.

The risks to foreign investors include the currency risk, where a change in the exchange rate affects investments badly. Hence a profit earned by investing in a period of time has no real effect as it takes more rupees to buy a dollar in terms of devaluation. Apart from that there is inflationary pressure that makes the prices go up every often leading to interest rate risk. This eventually leads to a rise in the cost of doing business.

The role of State Bank to keep a check on the SLR position of banks is important since banks are the tool to implement the nation’s monetary objectives. The role of brokers in providing assistance to execution of capital market activities cannot be ignored in the overall scenario of monetary management.

With control of various problems identified such as the country risk, economic risk, which includes currency risk, inflation, weak secondary markets, lack of proper rules and framework mechanism, and the cost of doing business, Pakistan has the potential to strive back on its own. But the issues need to be addressed on an urgency basis to ensure prompt results.

Pakistan Capital Markets: Mobilizing for Growth

A Summerized form of article, with ideas generated by the speech of former State Bank governer (Ms. Shamshad Akhter) in 2006.

Pakistan’s financial sector has been transformed completely from the past during the recent years; which could more clearly be described as the “first generation of reforms”. Some noteworthy factors to discuss are firstly, the mobile cash flow in the economies of region after the East Asian crisis. Secondly, the change in the global financial flows of capital from the east to the west, against the previous west to east scenario. This situation is mainly because of the imbalances the US economy currently faces in the form of budget deficits. The situation however, is remarkable since the US $1.7 trillion reserves are sufficient enough for the East Asian economies to finance their economic needs, and also opens up new opportunities for developing economies like Pakistan to find for itself, new capital flows to financing its needs from what these countries have to offer. This could make a new beginning of financial flows which the speaker this is beneficial for Pakistan in the long run.

Thirdly, the incorporation of the financial world and the yet though, the imbalances that implicates as a result of the strong clan of the G8 countries and investments only in some parts of the world, that has lead to capital deficient countries, with exposure to currency risks. This as a a result has made some countries to tighten their monetary policies to make sure they are inline with the financial stability for the long term.

With careful macroeconomic policies along with measures to deepen the financial markets and institutions, along with framework of rules that nourishes the financial sector, Pakistan can achieve its target of future prospects. Pakistan, with 5% average economic growth and with private sector credit, although improved, but is not up to the mark with the Asian economies. This shows that Pakistan is far behind from the competition when compared from Malaysia, Singapore, Thailand and Korea in terms of dept of equity markets, bank assets and bonds outstanding. Therefore, the market currently faces “lack of depth, breath, and maturity”.

However, with the new system and reforms such as the CDC and UIN in place, Pakistan is set to cover all its problems. Privatization and consolidation of banks with strict abidance to the Prudential Regulations, and the increased role of corporate governance, Pakistan has been marked as just close to India in terms of finance and efficiency.

Considering the equity market, the lack price discovery mechanism with much speculation taking place makes the market inefficient in terms of determining stock prices, which hurts small investors that enter the market. The solution to this problem is to increase market depth and breadth by IPOs much more frequent and vibrant with implementation of rules and regulations that wipe of chances of risks.

Another aspect that has leaded to improve the image of Pakistani markets is the integration of banking sector with capital markets. The approval of banks to open subsidiaries for brokerage has lead to improvements in governance and systems and the way capital markets work. Incorporation of the asset management companies and banks, in order to provide open-ended and close-ended mutual fund benefits to small investors has also been helpful in designing a level playing field for everyone and has also provided rights to small shareholders.

With integration of both in the developed markets, it is seen that the risk transferring and sharing is much easier. It has also leaded to the creation of instruments such as derivatives and securitization, which has been an important tool for financial leveraging.

Taking examples from the US, Europe and Chinese economies and banking practices, Pakistan need to decide which option to go for, since it would be a important decision and a prerequisite for economies of scale.

Lastly, the emergence of derivates market in Pakistani capital market is a step towards increasing the depth and breadth of the economy of the country. The State Bank has allowed foreign currency options, forward rate agreements and interest rate swaps which is slowly but surely gearing itself in the market.

With the current scenario in place, Pakistan has tremendous growth opportunities by private capital flow due to the savings trend and gathering that is in the region. Much also needs to be done though in the form of expanding the capital market and the banking sector. In line with Basel II accord, and much experience to understand from in terms of international market, Pakistan should be able to decide the path that needs to be followed to form a framework of rules that are important to liberalize the market effectively.

Moiz Damani is currently a student at Shaheed Zulfikar Ali Bhutto Institute of Science and Technology, pursuing an MBA degree with specialization in Finance.

Monday, January 18, 2010

Project mode or Operations mode: which one suits best for today?

One of the Statements discussed in the modern world today is about more and more firms shifting to Project Management mode of operations in rather than operations mode. Is it really so?

In the world of today where business strive on the basis of global competition, knowledge explosion, and customer focus, not to mention the extensive role of IT in every manner; it is true that more firms now focus on project management rather than in operations mode.

The most important reason for project based mode of management by firms is because of the need to deal with specific and complex tasks that are to be accomplished on timely manner, with some set quality parameters and a specified amount of budget, in order to achieve excellence in terms of customization and innovation.

An example for discussion would be the launch of a food section by Marks & Spencer: understanding the quantum change, planning the launch, making a marketing plan and executing it properly is one of the most visible example of Project management mode of working by firms. Operations are rather a continuous mode of working strategy and are followed later when the initial steps have been accomplished. Therefore, Project Management mode is used to start new business objectives. Later, these are executed to provide inputs to operations for better implementation.

The second reason for project management mode to be more adaptive is because of its general to specific nature: firms/organizations today have to deal with many aspects of technological and social innovations because of mass customization, which requires much lot of attention in work that has to be done in order to achieve goals set by the organization. In doing so, organizations tend to focus specific projects rather than a single collective task, so that work is done beyond the organizational normal capacities.

We can see from the example that was discussed in the prior session that previously, Ford use to produce a single model with a standard black color that happened to be successful for a long period of time. But as gradually time passed by, the increase in wants by customers made it essential for Ford to revisit its strategies and as we see in 2003, GM offered 89 models; selling an average of 50,000/model which clearly shows the need for specific project oriented mode of dealing with business activities.

Moreover that, project management is highly preferred because a proved and accurate planning for a specific task is possible and achievable. This would result in cost effective measures, and efficient use of resources and in return save time and money. It is also easy to track the progress of any project that has been started and rectify and loop holes that exist to make sure the project is implemented accordingly as planned.

Equal Opportunity and Discrimination In Work Place

Anti-Discrimination policy for women at workplace was coined back forty years ago when U.S congress passed an Equal Pay Act of 1963 allowing women the freedom to receive the same pay as their male colleagues. Moreover, this act was mostly set as an example by almost all other the other countries that later began the process of anti-discrimination and equal opportunity for women in all fields of life.

Anti-discrimination policies that allow women with lesser to compete with males of skills more than women do is considered to be a positive discrimination for women. This practice is also called quota system in many countries. The procedure is basically followed in bureaucracy where much of the employments are made through hiring people from different race, religion and educational background. The quota system in effect allows peoples with unequal educational levels to compete on the same ground.

Many countries, such as the sub-continent (India, Pakistan and Bangladesh) follow similar steps of quota system or positive discrimination as it is known in general to allow women to participate in politics, government institutions and state organizations. This allows women to have more opportunity then males to excel in career without having a specified educational criterion.
The anti-discrimination policy that tends to allow less skilled women labor to work as much of with highly skilled male labor is however banned in some countries. This kind of positive discrimination is banned in the United Kingdom. Much of the critics point out flaws in the positive discrimination being provided and mark them as leverage for being a woman. They point out that many take advantage of the affirmative discrimination by identifying themselves as deprived and take over employment of those who are deserving individuals.

Moreover, apart from work related arguments, Gary K. Clabaugh writes in one of his articles about the negative effect of positive discrimination on college students. He gives a comparative example of a Hispanic wealthy girl in U.S and an American white boy who has hardly managed money to support his tuition. Despite all what he had done to enter college, the Hispanic might be selected because of her race and gender. The mere purpose was to show the demerits of positive discrimination in society. Therefore, such laws have raised question about the threats it poses to rise of injustice.

On the contrary, Affirmative actions for women also have some benefits. The past we had seen was in desperate need for affirmative action like policies. Women in the past were allowed only to work as teachers, nurses, or mates. This caused them to become demotivated and remain economically poor not allowing them to social progress. Affirmative action policies later allowed women to excel as a strong and efficient work force. Women were hired as doctors, lawyers, construction workers, top executives, corporate CEO’s, police officers, combat pilots in the military, and even U.S. Secretary of State, and other occupations that were usually destined for men. Positive discrimination further also allowed women. Moreover, on a racial basis, African Americans were not allowed better jobs just because of their color. This trend later diluted due to the implementation of positive discrimination which caused equal opportunity for everyone.

Therefore, it is true that positive discrimination for women and other race related issues have been misused and have been discredited by many critics; but it is also imperative that one should know what really caused the concept to come to existence. It is this anti-discrimination for a woman (positive discrimination in reality) that has caused the society to progress in ideology of freedom that we see and experience today.


1. Masselot, A. , 2007-07-25 "Deep Impact: Mapping the Impact of Anti-Discrimination Law" Paper presented at the annual meeting of the The Law and Society Association, TBA, Berlin, Germany . 2009-05-24 from
2. Hirsh, E. and Kornrich, S. , 2004-08-14 "The Context of Discrimination: The Impact of Firm Conditions on Workplace Race and Gender Discrimination" Paper presented at the annual meeting of the American Sociological Association, Hilton San Francisco & Renaissance Parc 55 Hotel, San Francisco, CA, Online PDF. 2009-05-26 from
3. Gary K. Clabaugh (2000). Positive Discrimination. Retrieved July 28, 2009
4. Microsoft Encarta Online Encyclopedia. (2003). Discrimination. MSN. Retrieved July 28, 2009 from: Discrimination.