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SUBMITTED TO

COURSE INCHARGE:
PROFFESSOR: ABUZAR
WAJDI
(DIRECTORATE OF EVENING
PROGRAM)

A REPORT ON THE
ROLE OF STOCK
EXCHANGE WITH
REFERENCE TO
PAKISTAN ECONOMY

SUBMITTED BY
MUHAMMAD ASHAR
SHAMIM
SEAT NUMBER: EP-
0805103

I. Statement of Problem:
A study of Role of Stock Exchange with reference to the
Pakistan Economy, how its activities impact the core macro
economic indicators of Pakistan Economy.
II. Significance of the
Problem:

Stock market play very important role in economic


development. Inefficiency of stock market is one of the most
serious limiting factors in under developed country. In the
view of many experts stock market occupies the central and
strategic position in the process of economic development of
a country. Without having fully developed stock market, a
country will not be able to increase the availability of equity
funding and move towards more balanced financial
structures.

III. Objective of the


Problem:

In Pakistan, like many other developing countries, the stock


market could not play its crucial role in economic
development. So, in this report we will discuss some
important role of Stock Exchange which can enhance the
economic activities of any developing country.
IV. Effective Points about
the Objective of
Research:

ROLE OF STOCK EXCHANGE:


Stock Exchanges have multiple roles in the economy, this may
include the following:

1. Raising capital for businesses

The Stock Exchange provides companies with the facility to raise


capital for expansion through selling shares to the investing public.

2. Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a


more rational allocation of resources because funds, which could
have been consumed, or kept in idle deposits with banks, are
mobilized and redirected to promote business activity with benefits
for several economic sectors such as agriculture, commerce and
industry, resulting in a stronger economic growth and higher
productivity levels and firms.

3. Facilitating company growth

Companies view acquisitions as an opportunity to expand product


lines, increase distribution channels, hedge against volatility,
increase its market share, or acquire other necessary business
assets. A takeover bid or a merger agreement through the stock
market is one of the simplest and most common ways for a
company to grow by acquisition or fusion.
4. Redistribution of wealth

Stocks exchanges do not exist to redistribute wealth. However,


both casual and professional stock investors, through dividends
and stock price increases that may result in capital gains, will
share in the wealth of profitable businesses

5. Corporate governance

By having a wide and varied scope of owners, companies


generally tend to improve on their management standards and
efficiency in order to satisfy the demands of these shareholders
and the more stringent rules for public corporations imposed by
public stock exchanges and the government

6. Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay,


investing in shares is open to both the large and small stock
investors because a person buys the number of shares they can
afford. Therefore the Stock Exchange provides the opportunity for
small investors to own shares of the same companies as large
investors

7. Government capital-raising for development projects

Governments at various levels may decide to borrow money in


order to finance infrastructure projects such as sewage and water
treatment works or housing estates by selling another category of
securities known as bonds. These bonds can be raised through
the Stock Exchange whereby members of the public buy them,
thus loaning money to the government. The issuance of such
bonds can obviate the need to directly tax the citizens in order to
finance development, although by securing such bonds with the
full faith and credit of the government instead of with collateral, the
result is that the government must tax the citizens or otherwise
raise additional funds to make any regular coupon payments and
refund the principal when the bonds mature.
8. Barometer of the economy

At the stock exchange, share prices rise and fall depending,


largely, on market forces. Share prices tend to rise or remain
stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or
financial crisis could eventually lead to a stock market crash.
Therefore the movement of share prices and in general of the
stock indexes can be an indicator of the general trend in the
economy

V. Research Question
How activities of Stock Exchange impact the core macro
economics indicators of Pakistan Economy?

VI. Hypothesis:
To investigate this research, following certain assumptions
has been taken:

 Stock Exchange runs its activities without political


influence.

 All the activities of Stock Exchange are irrespective of


the intentions of the major brokers.

 Stock Exchange exists only for the development of the


economy.
VII. Methodology used by
Stock Market:
In this ever-fluctuating financial world, it is very difficult to know the best way to
go about making your money work for you. For generations the stock exchange
has given consumers the opportunity to invest their money into companies that
they felt would perform solidly, thus increasing the worth of their stock. In
essence, the stock market acts as a facilitator between buyers and sellers, as
they exchange stock that they hold in companies.

These companies use the money they receive from their investors to further their
business and increase profits; increased profit means a higher worth for the
stock. And round and round it goes. Traditionally, those looking to invest went to
a stock broker in any number of brokerage companies who would assist the
investor in the buying and selling of stock and the building of their financial
portfolio.

But in this age of the Internet, investors need only turn on their computer to be
linked into the stock exchange. Subsequently, to keep pace with this changing
economy, online stock brokers entered into this new world of finance in order to
assist virtual customers in achieving their financial goals.

Online stock brokers work within investment companies that offer online
resources as either their entire service or as part of their traditional brokerage
service. Some of the more commonly used online stock brokers are Ameritrade,
ETrade Financial, Fidelity, and Schwab. Such brokers operate much as
traditional brokers - assessing the investor's financial situation, the financial plan
they want to execute, and the stocks in which they are interested.

Working through these online stock brokers, investors create an account where
they can access their financial information at the click of a mouse. Online
brokerage houses offer an extensive amount of information in order for investors
to make informed decisions regarding their trades; stock quotes are kept scrolling
at all times on the website; historical performance on each stock can be
accessed; and in-depth information regarding each company's history and
financial status is available for investors to perform research prior to investing.

Investors turn to online trading and online stock brokers for a variety of benefits,
not the least of which is low broker fees; online broker fees generally run
between $7 and $10 per trade. There is also the control investors have to make
decisions on behalf of their own portfolio.

The world of investment has changed; no longer are investors required to


physically visit their stock brokers in order to examine their portfolio, set financial
goals, and buy and sell commodities. Today's savvy investors work from their
computers along with online stock brokers in order to be hands-on participants in
their own financial future.

INTRODUCTION
In this ever-fluctuating financial world, it is very difficult to know the best way to
go about making your money work for you. For generations the stock exchange
has given consumers the opportunity to invest their money into companies that
they felt would perform solidly, thus increasing the worth of their stock. In
essence, the stock market acts as a facilitator between buyers and sellers, as
they exchange stock that they hold in companies.

These companies use the money they receive from their investors to further their
business and increase profits; increased profit means a higher worth for the
stock. And round and round it goes. Traditionally, those looking to invest went to
a stock broker in any number of brokerage companies who would assist the
investor in the buying and selling of stock and the building of their financial
portfolio.

But in this age of the Internet, investors need only turn on their computer to be
linked into the stock exchange. Subsequently, to keep pace with this changing
economy, online stock brokers entered into this new world of finance in order to
assist virtual customers in achieving their financial goals.

Online stock brokers work within investment companies that offer online
resources as either their entire service or as part of their traditional brokerage
service. Some of the more commonly used online stock brokers are Ameritrade,
ETrade Financial, Fidelity, and Schwab. Such brokers operate much as
traditional brokers - assessing the investor's financial situation, the financial plan
they want to execute, and the stocks in which they are interested.

Online brokerage houses offer an extensive amount of information in order for


investors to make informed decisions regarding their trades; stock quotes are
kept scrolling at all times on the website; historical performance on each stock
can be accessed; and in-depth information regarding each company's history and
financial status is available for investors to perform research prior to investing.

Investors turn to online trading and online stock brokers for a variety of benefits,
not the least of which is low broker fees; online broker fees generally run
between $7 and $10 per trade. There is also the control investors have to make
decisions on behalf of their own portfolio.

Investors are able to choose what stocks they want to buy - regardless of what
the stock broker prefers. Online stock brokers - unlike traditional stock brokers -
do not exert much control over the stocks of the investor.

The world of investment has changed; no longer are investors required to


physically visit their stock brokers in order to examine their portfolio, set financial
goals, and buy and sell commodities. Today's savvy investors work from their
computers along with online stock brokers in order to be hands-on participants in
their own financial future.

Understanding the Stock Market:


The stock market seems to be in the news every day, yet many people do not understand
what it really is or how it works. Indeed, why should you even care if there seems to be a
problem with the markets? How does the value of stocks affect you, if you are not even sure
what stocks are? It is true that the stock market, at first sight, seems to have little relevance
to your daily life, as, if you think of them at all, stocks and shares conjure up images of
business men reading the Financial Times, but there is increasing access and influence from
the markets on every phase of our lives.
Firstly, let us consider what the stock market is, and what it is not. The term "stock market" is
somewhat amorphous, but embraces the concept of a system that allows trading, or buying
and selling, company stocks. Although the terms are often used interchangeably, a stock
exchange is actually different, and is the means by which buyers and sellers are brought
together to trade shares and securities. There are many stock exchanges in the world, and
you have probably heard of the New York Stock Exchange (NYSE), NASDAQ, the London
Stock Exchange (LSE) and others.
Stocks are simply financial shares in a company. After an initial issue of shares, which a
company sells to raise capital for its operation, the company plays no further part in buying
and selling the stocks, even though the company's actions can affect the market for its
shares, and thus the value. Instead, the stocks are bought and sold between investment
groups and individuals, and at a price that both buyer and seller agree to. It is the function of
the stock exchange to facilitate the trading in shares and similar "financial instruments", as
they are called.
The stock market embraces all the stock exchanges, as a whole, whereas the exchanges
are limited to shares that are "listed" with them. For instance, if you wanted to buy shares in
IBM, you would have to buy them through the NYSE, where they are listed. This keeps some
order to the proceedings, as, if they could be listed on several stock exchanges, it would be
difficult to make sure that they were always the same price at any time.
There have been many changes in the way that the markets work in recent years. The stock
exchanges have been progressively embracing technology and developing computerised
systems to help in setting the price that both buyer and seller agree to. Originally, the
markets were set solely by individuals called specialists, whose duty was to run a continuous
auction to match supply and demand and ensure that trading took place in a rational way.
One by one, the stock exchanges have been adopting electronic networks to facilitate
trading. The LSE launched their Stock Exchange Electronic Trading Service (SETS) in 1997,
and the NYSE started NYSE Direct+ in 2000, which allowed for automatic order execution. In
contrast, NASDAQ opened in 1971 without any trading floor, but with a large electronic
billboard in New York's Times Square. NASDAQ does not use specialists, but "market
makers", and each stock can be traded by several market makers at the same time, which
tends to make the prices more volatile.
The reason that there has been increasing interest in the stock market in recent years is that
the marketplace has opened up to the individual investor. While people may have held
shares in the past, they were for the long term, and not often traded or even thought about.
Of course, you have always been able to call your broker, and put in your order, but this kind
of practice was mainly for those who were already investment minded. The Internet has
made research into stocks and shares much easier, the computer has made analysis of
stocks and shares available to everyone, and the Web has made dealing in shares both
cheap and simple. No wonder that everyone now thinks they can use all this available
information and make a fortune in the markets.

However, as Stu Whisson, of Insight Support Limited (http://www.insightsupport.com) puts it,


"While the tools are available to everyone, the fundamental understanding of how to use
them is in short supply".

If you are thinking of getting into the stock market, it may be because you have heard that
the average annual increase in the stock market is 5% per year over the past century. This
somewhat beats the current interest rate on a savings account. If you are looking to invest
for a long time, the fact is that there has never been a thirty year period for the stock market
when investors have not made money. That said, there have been many periods when the
dramatic fluctuations in the marketplace have allowed investors to lose their shirts. When
asked by an eager investor what the stock market would do, J. P. Morgan succinctly replied
"It will fluctuate", and this summarizes both the danger and the opportunity of trading on the
stock market.
This article was written and provided by Insight Support Limited. Insight Support Limited,
provide online trader training, to new and established traders, wanting to learn how to
develop, and profit as a trader.
HOW DOES STOCK MARKET FLUCTUATE

Pre-Opening

1. Before the market opens every day, the opening price of each stock
traded on that market is determined. Generally, it will be the same as the
closing price of the stock from the previous day's trading. However, if
something significant happened to the company while the market was closed,
the specialist or market makers in the stock will adjust the opening bid and
offer accordingly. The specialist or market makers will attempt to strike a
balance between the buy and sell orders that were entered prior to the market
opening for the day.

Market Hours

2. During market hours, the stocks are freely trading. Market fluctuations are
caused by an imbalance in supply and demand or, more simply, buy orders
and sell orders. If there are more buy orders for a certain stock than there are
sell orders, the price of that stock will rise. If there are more sell orders for a
given stock than buy orders, the price of that stock will fall. The market
constantly seeks a balance between buyers and sellers, between supply and
demand, and this causes the moment-to-moment fluctuations in individual
stocks and in the overall market.

This is why market timing is so important for institutional investors. When


buying or selling a large block of stock, it is possible to move the price of that
stock in one direction or the other. Institutional investors who work in large
blocks of stock attempt to choose the best time to buy or sell. When buying,
they determine the maximum price they are willing to pay for a stock and wait
until the stock comes under an imbalance of selling pressure, enabling them
to buy the stock without driving the price up. Likewise, when selling, they look
for an increase in the buy-side volume of a stock so that when they sell a
large position it doesn't drive the market price down.

After Hours

3. The final prices of the stocks are calculated and posted within 30 minutes
of the closing bell. That is when after-hours trading begins. Though after-
hours trading volume is minuscule compared to the volume during market
hours, after-hours trading can give a good indication of what may happen the
next trading day. In addition, stock futures trade after-hours and can provide a
clue or two about what may happen to the overall market the next trading
day. Significant news events, earnings releases, and reports of insider buying
or selling all effect the market sentiment in a given stock which causes
investors to want to buy or sell that stock, forcing the stock market to
fluctuate.

ROLE OF BROKERS IN STOCK MARKET

When you’re ready to dive in and start investing in stocks, you first have to choose a
broker. It’s kind of like buying a car. You can do all the research in the world and know
exactly what kind of car you want to buy still; you need a venue to do the actual
transaction. Similarly, when you want to buy stock, your task is to do all the research you
can to select the company you want to invest in. Still, you need a broker to actually buy
the stock, whether you buy over the phone or online.

The broker’s primary role is to serve as the vehicle through which you either buy or sell
stock. When I talk about brokers, I am referring to organizations such as Charles Schwab,
Merrill Lynch, E TRADE, and many other organizations that can buy stock on your behalf.
Brokers can also be individuals who work for such firms. Although you can buy some stocks
directly from the company that issues them, to purchase most stocks, you still need a
broker.

Although the primary task of brokers is the buying and selling of securities (keep in mind
that the word securities refers to the world of financial or paper investments, and that
stocks are only a small part of that world), such as stocks, they can perform other tasks for
you, including the following:

- Providing advisory services - Investors pay brokers a fee for investment advice. Customers
also get access to the firm’s research.

- Offering limited banking services - Brokers can offer features such as interest-bearing
accounts, check writing, direct deposit, and credit cards.

- Brokering other securities - Brokers can also buy bonds, mutual funds, options, Exchange
Traded Funds (ETFs), and other investments on your behalf.

Personal stockbrokers make their money from individual investors like you and me through
various fees, including the following:

- Brokerage commissions - This fee is for buying and/or selling stocks and other securities.

- Margin interest charges - This interest is charged to investors for borrowing against their
brokerage account for investment purposes.

- Service charges - These charges are for performing administrative tasks and other
functions. Brokers charge fees to investors for Individual Retirement Accounts (IRAs) and
for mailing stocks in certificate form.

Any broker you deal with should be registered with the National Association of Securities
Dealers (NASD) and the Securities and Exchange Commission (SEC). In addition, to protect
your money after you’ve deposited it into a brokerage account, that broker should be a
member of the Securities Investor Protection Corporation (SIPC). SIPC doesn’t protect you
from market losses; it protects your money in case the brokerage firm goes out of
business. To find out whether the broker is registered with these organizations, contact
the NASD, SEC, and SIPC.
There is a saying: stock markets have
predicted 10 out of the last 3 recessions.
With plummeting share prices making headline news,
it is worth considering the impact of the Stock market
on the economy. How much should we worry when
share prices fall? How does it impact on the average
consumer? And how does it affect the economy?

Economic Effects of Stock Market:


1. Wealth Effect

The first impact is that people with shares will see a fall in their wealth. If the fall is
significant it will affect their financial outlook. If they are losing money on shares they
will be more hesitant to spend money; this can contribute to a fall in consumer spending.
However, the effect should not be given too much importance. Often people who buy
shares are prepared to lose money; their spending patterns are usually independent of
share prices, especially for short term losses.

2. Effect on Pensions

Anybody with a private pension or investment trust will be affected by the stock market,
at least indirectly. Pension funds invest a significant part of their funds on the stock
market. Therefore, if there is a serious fall in share prices, it reduces the value of pension
funds. This means that future pension payouts will be lower. If share prices fall too much,
pension funds can struggle to meet their promises. The important thing is the long term
movements in the share prices. If share prices fall for a long time then it will definitely
affect pension funds and future payouts.

3. Confidence

Often share price movements are reflections of what is happening in the economy. E.g.
recent falls are based on fears of a US recession and global slowdown. However, the
stock market itself can affect consumer confidence. Bad headlines of falling share prices
are another factor which discourage people from spending. On its own it may not have
much effect, but combined with falling house prices, share prices can be a discouraging
factor.

4. Investment

Falling share prices can hamper firms ability to raise finance on the stock market. Firms
who are expanding and wish to borrow often do so by issuing more shares – it provides a
low cost way of borrowing more money. However, with falling share prices it becomes
much more difficult.
As I said earlier there is an oft repeated quote saying the stock market has predicted 10
out of the last 3 recessions. The point is that falling stock markets do not necessarily
predict the economic future. Share prices can fall without causing a downturn in the
economy. For example, one thinks of the stock market crashes of October 1987; there
wasn’t an obvious economic factor causing this share price fall. The major economies
remained relatively unaffected by this stock market crash.

An overview of K.S.E
The aim of this research is to investigate the performance of Karachi
stock market over the sixty years. Although three stock exchanges
are working in Pakistan but Karachi stock market is a true and active
stock exchange which covers 75% of trading activity. That is why this
research report is focused on Karachi stock market (KSE). Till 1990
the KSE market was narrow and unable to cater to the long term
capital needs of the economy. That is why there was no importance
of KSE in economic development. After 1990 the Govt. took many
measurements to activate the stock market in economic
development. The analysis indicates that the KSE market got
momentum during 1960’s and made significant increase in listed
companies and market capitalization. However, this momentum could
not maintain during 1970’s. The reason was separation of East
Pakistan and Nationalization policy. As a result sixty companies were
delisted and eighteen companies were nationalized. During 1980’s
denationalization policy restored however, the KSE could not get
momentum before 1990. The year 1990 provide new life to Karachi
stock market. The reason is KSE was opened for foreign investors
and financial reforms introduces. As consequences the dept and size
of market improved significantly. However, this achievement could
not continue in later years. To improve the economic performance of
KSE, the management of KSE and C.L.A (corporate law authority)
later S.E.C.P (security and exchange commission of Pakistan) has
taken many measurements. Due to unfavorable economic situation
i.e. high inflation rate, unemployment rate and widening budget deficit
these measurement could not improve the performance of KSE.
Moreover, the KSE is driven by speculative sentiments and insiders
trading have been ruling the market have often resulted in price
volatility as well as price manipulation. The market’s response to
fundamental investment oriented events has been dismal and less
significance. It is suggested that the KSE should improve the quality,
quantity and creditability of information companies discloses to
investing public. The information may address the diversification,
investor’s participation and minimization of unanticipated practices.
Such policy may protect the small investor’s interest that is always
issued for developing and emerging stock markets.

PERFORMANCE OF KSE BEFORE 1990 IN A GLANCE:

At the time of independence the condition of Pakistan economy was


poor. The economic progress continued in 1960’s especially in the
first half of this decade. In the second half there was an adverse
effect on Pakistan economy due to war between India and Pakistan
and socio political unrest. The new listed companies increased up to
318, and market capitalization increased up to Rs. 4.25 billions
($892.5 m). Annual turn over also increased sharply during second
half of this decade i.e. 15.4 million share changed the hands.

The 70’sdacade was the worst decade in Pakistan economy. A war


between India and Pakistan as a result the separation of East
Pakistan and nationalization policy which had adverse effect on
Pakistan economy as well as on Pakistan equity market. Sixty
companies got delisted due to separation of East Pakistan and 18
companies were nationalized. 70% of the economy was under the
control of the Govt. and 30% was under private sector. However
private sector was fully dominated by public sector that is why by the
end of 70’s the listed companies were 314 and market capitalization
was Rs. 6.36 billion ($ 642.4 m). The annual turnover was 25.8
million Shares which was only 67% higher than in 1970.

The certain steps were taken from 1985-86 which had positive impact
on investment climate and restored business climate that had
improved stock market activity. As a consequence the number of
listed companies increased from 314 to 438 and market capitalization
increased eight times from Rs. 6.36 billions to Rs. 52.79 billions and
annual turnover also rose up to Rs. 252.9 million.

The 1990’s started with uncertain situations. These unfavorable


reasons could not affect the market sentiments largely due to
privatization move and measure taken to liberalize the economy. As a
result the number of companies increased from 438 to 487 and
market capitalization from Rs. 52.79 billion to Rs. 64.8 billions.
PERFORMANCE OF KSE AFTER 1990 AT A GANCE:

In 1991, the new Govt. took some steps. Due to these steps stock
market reacted positively and by the end of 1991, the listing
companies rose up to 542 while 61 new companies are listed in stock
market. Market capitalization increased more than double i.e.
Rs.189.518 billion ($7.3 b). Similarly turnover and traded value
increased twice i.e. 361 million. As a result, Pakistan share market
was given 2nd rank among five emerging markets in the world in terms
of returns obtained by investors.

The success continued in 1992 due to Govt. favorable policy which


attracted the foreign investors. As a result, listed companies
increased up to 628 in which 86 companies are new and market
capitalization reached to Rs. 204.723 billion ($ 8.025 billion)

In 1993 Mr. Nawaz Sharif’s Govt. dissolved and care taker Govt. was
formed. The general elections were held and as a result Ms Bhutto
Govt. came into power. The investors gained confidence after
settlement of political crisis and once again the market became
bullish in the last quarter of 1993. As a result, listed companies
increased up to 653 in which 38 companies are new and market
capitalization reached to Rs. 370.247 billion ($ 12.025 billion)

In the first quarter of 1994 the bullish trend was observed in KSE but
in later months up to the end of the year, the market did not maintain
this momentum. This was due to a significant reduction in the annual
production of cotton and political tension between Govt. and
opposition parties. 72 new companies were listing during this year, by
the end of 1994 the listed companies rose up to 724 and market
capitalization increased to 400.554 billion ($ 12.263 billion)

In 1995 was not a good year for Pakistan equity market. Due to
political crisis, discouraging economic outlook, and outbreak of
violence in Karachi. The situation further Detroited by the Mexican
financial crises that discouraged the foreign investors in investing in
emerging markets. KSE 100 index decreased by 26.9% in terms of
local currency and 33.7% in terms of Dollars. 41 new companies
were listed during this year. Turnover was also sluggish and was Rs.
272.397 billion ($ 266.2 million) while total market capitalization
dropped by 24.3% i.e. Rs. 327.781billion.

In 1996 Ms. Bhutto government has dismissed which supposed to


eliminate political unrest. KSE index fell by 9.6% in domestic currency
and 19.3% in terms of Dollar. However, turnover and market
capitalization increased by 6732.65 million shares worth $ 6.1 billion
and 14.6% or Rs. 471.665 billion ($ 12.37 billion) respectively.

In 1997 new government came into power which had positive effects
on Pakistan equity market. The main reason was the fact that the
said government had introduced a few economic liberalization
measures during its first tenure. As a result, listed companies
increased up to 782 in which 4 companies are new and market
capitalization reached to Rs. 524.148 billion.

1998 started with two major events whose influenced continues in


1999 and 2000. These events were: first was nuclear test which
ultimately had its effect on the financial sector and second was the
controversy between PPP and government of Pakistan about
regulating the HUBCO project. These events adversely affected KSE.
Listed companies decreased up to 774 only one new company was
listed. The market capitalization also reduced and reached to Rs.
301.1032 billion.

Pakistan stock market witnessed extraordinary volatility in 1999.


January saw the KSE-100 index at 945 in the aftermath of 1998
nuclear test and subsequent sanctions, followed by freezing of
foreign currency. No new company listed in KSE and listed
companies decreased up to 765 and market capitalization slightly
increased up to Rs. 366.670 billions.

The year 2000 started with the credibility of government of Pakistan’s


which was critically dependent on delivering the comments of good
governance, accountability of corrupt elements and sustained
economic revival through reforms. Due to crackdown on the willful
bank loan defaulters has resulted in Rs. 10 billion being recovered
and some Rs. 30 billion being rescheduled within two months –
something not achieved by any government in the last two decades.
Only three new companies are listed and the listed companies
reached up to 741 and market capitalization was Rs. 382.736 billion.

PERFORMANCE OF KSE AFTER 2000 AT A GANCE:

2001 has been quite a dull year in terms of actual stock market
activity in Pakistan. The downward trend showed the reduction of
KSE-100 index. The listed companies were 737 including only three
new companies and the market capitalization was Rs. 296.144 billion.

During financial year 2002, the KSE had implemented several


structural developments. The KSE-100 index shot up by 2278.54
points and market capitalization also increased up to Rs. 550.55287
billion. Only four companies were listed in Karachi stock market and
listed companies reached up to 719.

The bullish trend of stock market continued during 2003 and KSE-100
index touched the highest point i.e. 4604.02. the listed companies
were 705 in which only 6 companies are new and market
capitalization reached up to Rs. 951.55 billion.

The performance of KSE showed improvement in 2004. seventeen


new companies were listed in stock market and listed companies
reached up to 705 and market capitalization reached up to Rs.
1723.454 billion.

The continuation of bullish trend in KSE during 2005 is also observed


and KSE-100 index first time cross 10000 points. The KSE-100 index
shoots up by 10303.15 points and market capitalization also
accelerated up to Rs. 2467.9 billion.

The year 2006 maintained bullish trend momentum and made


records in Karachi Stock Market. KSE-100 index crossed the barrier
of 12000 marks and reached 12273.77 points.

During 2007 the bullish sentiments in stock market continued. There


are several factors which are speedy privatization process; attracting
foreign investors in prestigious organizations; resolution of IPP
(Independent Power Producer) issue; allowing foreign investors to
repatriate their funds without any restrictions; reduction in the interest
rate by commercial banks; recovery of outstanding/over due loans;
rescheduling of foreign debts and prepayments of expensive foreign
loans. The market capitalization increased up to Rs. 4019 billion and
listed companies were 656 including 18 new companies.

VIII. Suggestions:

K.S.E is driven by speculative sentiments and insiders


trading have been ruling the market have often resulted in
price volatility as well as price manipulation. The market’s
response to fundamental investment oriented events has
been dismal and less significance. It is suggested that the
K.S.E should improve the quality, quantity and creditability of
information companies discloses to investing public. The
information may address the diversification, investor’s
participation and minimization of unanticipated practices.
Such policy may protect the small investor’s interest that is
always issued for developing and emerging stock markets.

IX. Conclusion:

In a nut-shell, it has been stated that Stock Exchange of any


developing country can enhance or push up the activities of
economy. Through this market, any unlisted company can
raise maximum capital by IPO (Initial Public Offering) for the
expansion of its activities which increase the investment in
the country. This will lead to create the employment
opportunities in the country due to which production and
consumption also increases. In this way, just because of
Stock Exchange Economy of any developing country may
reach to its maximum point.