Foreign Portfolio Investments (FPIs)
simply mean investments in the secondary market by the foreign investors. For
the portfolio investors the purpose is to invest their funds where they be able
to get maximum return by risk exploitation. This job can be done through passive
holding of shares or through active trading of securities in the financial or
capital markets. The major difference between Foreign Direct Investments and
Foreign Portfolio Investments is that the purpose of former investments is to
take the control and operate an indigenous business organization.
Foreign Portfolio Investments play a very important role in the economic
development of the host country. First of all FPIs increase the liquidity
position of local economy and then FPIs help to improve the Foreign Reserves
that results in a stabilize exchange rate. Secondly FPIs induce new invests in
the economy hence the rate of investment increases and lastly, FPIs are also
helpful and encourages existing business firm to expand their businesses through
raising their equities by issuance of new securities in the market.
In the economy of Pakistan FPIs getting more and more importance since the
market risk is very high due to geopolitical situation of the homeland and
foreign investors are reluctant to inject FDIs in Pakistan so foreign
investments can be attracted towards Pakistan through FPIs. Even though it’s a
short time measure but this will be helpful to attract foreign investors in
Pakistan.
But unfortunately, the current situation of Pakistan economy and especially of
stock markets is very gloomy. Economists say that stock exchanges are the
barometers of an economy. In Pakistan the barometer is getting slower and slower
in these days since the stock market is in its worst crisis era. Index of
Karachi Stock Exchange (KSE) has reached to 6500 points from 16000 points due to
a number of factors, major of which of course, is the geopolitical situation of
Pakistan that caused the flight of capital from the economy.
Now the real question is that how our economic managers can boost the confidence
of foreign investor so that foreign investor be ready to invest their funds in
Pakistan?
For this purpose following steps are unavoidable to b taken:
First of all government should float Bailout Program to facilitate investor in
divesting their investments. For this purpose Buy Back option would be very
handy. Secondly SECP (Securities and Exchange Commission of Pakistan) at least
make it obligatory for those firms who have raised their capitals in KSE to buy
back their shares. And finally federal government should provide relaxation on
Capital Gain Tax for a definite period of time in order to boost the confidence
of investors on stock markets.
To conclude, it is inevitable to uplift the stock markets so that Foreign
Portfolio Investments can be attracted towards Pakistan because foreign
investments are unavoidable for the development of Pakistan.