THE EXPRESS TRIBUNE, KARACHI, 02nd OCTOBER 2013:
Returns offered on the National Savings Schemes (NSS) may go up soon following the recent uptick in Pakistan Investment Bonds (PIB) yields, sources said on Tuesday.
While there have been conflicting media reports about a hike in the NSS returns, with at least one newspaper claiming that the increase has already taken effect, sources within the National Savings Organisation confirmed to The Express Tribune that the Ministry of Finance has yet to take the final decision on the issue.
“The NSS rates haven’t been increased so far, as the issue is still being discussed at the ministry level,” a source said while requesting anonymity. “There is still a difference of 2%-2.5% between the current NSS returns and PIB yields, which calls for an increase in the profit rates,” he noted.
Traditionally, NSS returns are linked with the rates offered on PIBs. Owing to the fact that NSS rates should ideally be 95% of the most recent quarterly PIB auction yields of similar tenor bonds, the Central Directorate of National Savings (CDNS) has requested the Ministry of Finance to revise NSS returns upwards.
In a story published on Tuesday, Business Recorder claimed that the Ministry of Finance has turned down a summary given by the CDNS requesting a hike in the returns. However, the NSS official denied it, saying a final decision is expected either Tuesday evening or Wednesday.
However, calling the likely decision to increase the NSS returns ‘shocking,’ Topline Securities CEO Mohammed Sohail said it will result in outflow of funds from the stock market and real estate to the NSS. “It appears that the government wants to retire its borrowing to the SBP while borrowing from the NSS in order to meet the International Monetary Fund’s targets,” Sohail told The Express Tribune.
Press reports suggested that the increase proposed in the CDNS summary sent to the Ministry of Finance ranges between 0.45% and 2.1%.
However, analysts believe increasing yields on such fixed-income schemes will hurt the liquidity in the stock market, which has posted a return of over 90% since the beginning of 2012 because of enhanced investment from local investors in view of declining interest rates.
In a research note issued to its customers on Tuesday, Topline Securities said liquidity in the equity market will come down after an increase in treasury bills rates, which went up 75 basis points in three months. Similarly, 10-year government bonds, whose yield increased 195 bps in three months, along with a rise of 50 bps in the minimum deposit rate on savings account will also affect liquidity in the stock market.
In fact, Pakistan’s equity market remained the worst performer in all regional markets, as it registered a month-on-month decline of 4.8% in the Frontier Market Index, according to InvestCap research analyst Abdul Azeem.
“Liquidity drives the market in the short run. And the recent developments clearly indicate that the stock market will suffer from the available liquidity,” the Topline Securities research note said