



Stock market analysts have shown optimism that huge portfolio investment from India to Pakistan will follow the recent easing of investment restrictions that have hindered the cross-border movement of capital for decades.





India allowed Pakistani citizens and companies incorporated in the country to make investments in India in all sectors other than defence, space and atomic energy in the beginning of August. This announcement was followed by the reduction of items in the sensitive trade list by almost one-third besides the grant of permission to Pakistanis to buy shares in Indian companies.“There’s likely to be more inflow into, rather than outflow from, Pakistan with regard to the recent developments. India’s stock market is expensive while Pakistan’s is fairly cheap,” says Muzzamil Aslam, Managing Director of Emerging Economics Research.“You can have an oil share in Pakistan at half the price you’ll pay in India,” adds Aslam, who served as chief economist at JS Global until recently.There was no provision in Pakistan’s laws that specifically restricted portfolio investment from Indian citizens, he said. Just like any other national, Indians would also buy shares in the Pakistani market through their regular trading accounts in international brokerage houses, he added.“But Indian brokerage companies are now likely to collaborate with their Pakistani counterparts in a way that global financial services’ firms, like JPMorgan and Morgan Stanley, do by joining hands with local brokerage firms to trade on the Pakistani stock market. This development has a strong symbolic value,” Aslam said.The recent abolition of some investment restrictions is likely to result in Indian and Pakistani brokerage houses joining hands to promote stock trading in each other’s country, which is expected to increase portfolio investment across the borders.News stories in the Pakistani media say that Pakistani and Indian brokerage houses have decided to set up representative offices in the two countries after the successful conclusion of the recent visit of a Pakistani parliamentary delegation to Delhi.There was an outflow of private portfolio investment from Pakistan amounting to $71.1 million in 2011-12. In 2010-11, the net private portfolio investment was $344.5 million. Similarly, in the first month of fiscal 2012-13, portfolio investment stood at $28.8 million, which came from the United Kingdom, Hong Kong, Switzerland and Australia, among others.However, the volume of private portfolio investment from India to Pakistan has traditionally been negligible.While Pakistan exported goods worth $272 million to India in calendar year 2011 as opposed to the imports from India costing $1.6 billion in the same year, media reports have quoted members of Indian and Pakistani business communities as saying that the volume of illegal trade between the two countries is approximately $10 billion annually.Aslam stated that the size of Pakistan’s stock market was relatively small. “Of the approximate market capitalisation of $40 billion, free float is just about 25%, which means $10 billion,” he said, referring to the shares that are available to investors for trading on the stock market.“Out of the $10 billion, about $2 billion is already foreign-owned,” he noted, saying that even a considerably small inflow, which is between $300 and $400 million, will leave a huge impact on the prices of Pakistani stocks.Published in The Express Tribune, August 31, 2012.