Interpretation 2003

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1.Introduction
This is the final project of the Course Named: Investment & Portfolio
Analysis. The purpose of this project is to examine thoroughly if the
CAPM holds true in the emerging capital market of Pakistan. Tests are
conducted for a period of five years (2005-2009), which is
characterized by intense return volatility (covering historically high
returns over the examined period).
1.1. Karachi Stock Exchange
• Incorporated on March 10, 1949

• Premier Stock exchange of the country
• Started with 5 companies that had a paid up capital of Rs. 37
million.
• Trading was done through an open-out-cry system
• The first index was the KSE 50 Index
• Exchange owned by 200 members
• 652 companies listed
• 4 indices
• Modern Risk Management System
a. Var Based Margin
b. Pre Trade Margin Verification Page
• KSE is FIX Compliant
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• Electronic Trading through KATS
• Market capitalization*: US $ 26.04 billion
• Publicly Listed Company with strategic investor
• Products to include:
a. Options
I Investment Analysis & Portfolio Management GIFT University
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b. ETFs
c. Tradable Sector Indices
d. Debt Market Trading
• Broad based investor participation
• Cross border listings of companies
• Opening up of branches in other cities and in the region
1.1.1.Definition
A stock exchange, share market or bourse is a corporation or

mutual organization which provides facilities for stock brokers and
trader s, to trade company stocks and other security.
A stock exchange, (formerly a securities exchange) is a

corporation or mutual organization which provides "trading" facilities
for stock brokers and traders, to trade stocks and other securities.
Stock exchanges also provide facilities for the issue and redemption of
securities as well as other financial instruments and capital events
including the payment of income and dividends. The securities traded
on a stock exchange include: shares issued by companies, unit trusts,
derivatives, pooled investment products and bonds. To be able to trade
a security on a certain stock exchange, it has to be listed there. Usually
there is a central location at least for recordkeeping, but trade is less
and less linked to such a physical place, as modern markets are
electronic networks, which gives them advantages of speed and cost of 2Page
transactions. Trade on an exchange is by members only. The initial
offering of stocks and bonds to investors is by definition done in the
primary market and subsequent trading is done in the secondary
market.
A stock exchange is often the most important component of a stock

market. Supply and demand in stock a market is driven by various

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factors which, as in all free markets, affect the price of stocks (see
stock valuation).
There is usually no compulsion to issue stock via the stock exchange

itself, nor must stock be subsequently traded on the exchange. Such
trading is said to be off exchange or over-the-counter. This is the usual
way that derivatives and bonds are traded. Increasingly, stock
exchanges are part of a global market for securities.
1.1.2. Vision
To be a leading financial institution, offering efficient, fair and

transparent securities market in the region and enjoying full
confidence of the investors.
1.1.3. Mission
To strive and provide quality and value-added services to the capital

market in an efficient, transparent and orderly manner, compatible
with international standards and best practices;
To provide state of the art technology and automated trading
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operations driven by a team of professionals in accordance with good
corporate governance;
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To protect and safeguard the interest of all its stakeholders, i.e.

members, listed companies, employees and the investors at large; and
To reflect country’s economic health and behaviour and play its role
for the growth, development and prosperity of Pakistan.

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1.1.4.KSE POSITIONED TO BE A HUB OF CAPITAL FORMATION

IN THE REGION
• South Asian Federation of Exchanges (SAFE)
• Vice Chairmanship of the South Asian Federation of Exchanges

Member Federation of Euro-Asian Exchanges (FEAS)
• Affiliate Member of the World Federation of Exchanges (WFE)
• Affiliate Member of International Organization of Securities

Commissions (IOSCO)
• Agreements with other Exchanges Dubai Financial Markets Abu

Dhabi Securities Market Shanghai Stock Exchange
1.1.1.THE FUTURE SUCCESS WILL DEPEND ON THE QUALITY

OF HUMAN RESOURCES
• A spirit of youthful energy, high intellect and superior skills

characterizes our people.
• Our workforce consists of a combination of youth and experience

– perfectly suitable to the organization’s current requirement and
future challenges.
• KSE employs the best available human resource from the capital
market and financial industry.
• Candidates are selected based on their individual energy, quick

thinking ability, confidence, decision making ability, integrity and
professionalism – attributes that define the person’s
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compatibility with KSE culture.
• The key to our long-term success is the creative genius of our

people and their drive towards excellence.
• Our employees are exposed to an organizational commitment to

continuous personal and professional development.

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• Our people get involved in various initiatives ranging from

management skills, development and personal improvement, to
technology advancement and process enhancement.
• On a regular basis, some of our best performers are selected for

our Mentoring Program, where seasoned mentors groom their
portages towards positions of greater responsibility and
influence.
• Promoting a performance driven culture where ‘high performers’

are recognized for their exceptional contributions.
1.1.1. KSE PLAY A KEY ROLE IN PAKISTAN’S ECONOMY
• The KSE is one of Pakistan’s largest tax payer and in the fiscal
year 2006- 2007 contributed over Rs. 4 billion towards the
national exchequer.
• Listed Companies contribute over 10% of total revenue collected

by the Government of Pakistan.
• KSE brokers on average pay more than 50% of their profit before
tax as presumptive tax.
• Our investors pay 10% tax on dividends.
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1.1.1.THIER CUSTOMER
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• Issuers (Listed Companies)
• Brokers and Members
• Investors
1.1.1.THE TECHNOLOGY

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The Information Technology Group forms the Core of the

Business Operations
• Development, implementation and monitoring of state-of-the-art

trading system known as Karachi Automated Trading System
(KATS), introduced in 2002 with a capacity of 1 million trades a
day and unlimited number of users.
• Disaster Recovery Management and Business Continuity

Programs database backups.
• Software Development, Testing and Training.
• Customer Services Support.
• Caters to member’s complaints regarding computer network and

trading systems.
• Administration and Maintenance of servers and operating

systems.
• Partnerships with Microsoft, Oracle and Unisys for I.T.

infrastructure.
1.1. MARKET INDICES
KSE 100 Index
The KSE 100TM Index was introduced in 1991 and comprises of 100
companies selected on the basis of sector representation and highest
market capitalization, which captures over 80% of the total market 6Page
capitalization of the companies listed on the Exchange. Out of 35
Sectors, 34 companies are selected i.e., one company from each
Sector (excluding Open-End Mutual Fund) on the basis of the large
market capitalization and the remaining 66 companies are selected on
the basis of highest market capitalization. This is a total return index
i.e. dividend, bonus and rights are adjusted. The same methodology is

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applicable in the case of All Share Index, which includes all the listed
companies, (except Open-End Mutual Funds).
• Most recognized index of the KSE
• Representation from all sectors of the KSE and includes the

largest companies on the basis of their market capitalization
• Represents over 85% of the market capitalization of the

Exchange.
1.2.1. OBJECTIVE
The primary objective of the KSE100 index is to have a benchmark by

which the stock price performance can be compared to over a period
of time. In particular, the KSE 100 is designed to provide investors with
a sense of how the Pakistan equity market is performing. Thus, the
KSE100 is similar to other indicators that track various sectors of the
Pakistan economic activity such as the gross national product,
consumer price index, etc.
1.2.2. BRIEF ABOUT KSE-100 INDEX
The KSE-100 Index was introduced in November 1999 with base value
of 1,000 points. The Index comprises of 100 companies selected on the
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basis of sector representation and highest market capitalization, which
captures over 80% of the total market capitalization of the companies
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listed on the Exchange. Out of the following 35 Sectors, 34 companies
are selected i.e. one company from each sector (excluding Open-End
Mutual Fund Sector) on the basis of the largest market capitalization
and the remaining 66 companies are selected on the basis of largest
market capitalization in descending order. This is a total return index
i.e. dividend, bonus and rights are adjusted.

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1.2.3. LIST OF SECTORS
1. Open-end Mutual Funds 2. Close-end Mutual Funds

3. Modarabas 4. Leasing Companies
5. Investment Banks 6. Commercial Banks
7. Insurance 8. Textile Spinning
9. Textile Weaving 10. Textile Composite
11. Woollen 29 Chemical 12. Synthetic & Rayon
13. Jute 14 Sugar & Allied Industries
15. Cement 16. Tobacco
17. Refinery 18. Power Generation
19. Oil & Gas Companies 20. Oil & Gas Companies
21. Engineering 22. Automobile Assembler
23. Automobile Parts & Accessories 24. Cables & Electric Goods
25. Transport 26.Technology
27. Fertilizer 28. Pharmaceuticals
30. Paper & Board 31. Allied Industries
32. Leather & Tanneries 33. Personal Care
Products
34. Glass & Ceramics 35. Miscellaneous
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1.2.4. STOCK SELECTION RULES
The selection criteria for stock inclusion in the recomposed KSE100

Index are:

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Rule # 1 Largest market capitalization in each of the 34 Karachi Stock

Exchange sectors excluding Open-end Mutual Fund Sector;
Rule # 2 The remaining index places (in this case 66) are taken up by
the largest market capitalization companies in descending order.
Rule # 3 Company which is on the Defaulters’ Counter and/or its

trading is suspended, declare Non-Tradable (i.e. NT) in proceeding 6
months from the date of recomposition shall not be considered in the
recomposition of KSE-100 Index.
A number of the 34 top sector companies may also qualify for inclusion
on the basis of their market capitalization. In other words, companies
may qualify solely under rule 1, solely under rule 2, or under both.
The fact that the sector rule is identified as Rule 1 does not imply that
it is more important, only that the nature of the selection process is
such that it is the screening that is done first.
1.Methodology
The methodology we adopt for the completion of this project is that our
target was to select single KSE 100 Index listed company from each
sector and we are more successful in doing that task.
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The sectors chosen by us are mentioned below:
• Automobile and Parts

• Banks
• Beverages
• Chemicals

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• Construction and Materials

• Electricity
• Electronic and Electrical Equipment
• Equity Investment
• Fertilizer
• Financial Services
• Fixed Line Telecommunication
• Food Producers
• Forestry and Paper
• Gas Water and Multiutilities
• General Industrials
• Health Care Equipment and Services
• Industrial Engineering
• Industrial metals and Mining
• Industrial Transportation
• Life Insurance
• Leisure Goods
• Non Life Insurance
• Oil and Gas Producers
• Personal Goods
• Pharmacy and Bio Tech
• Support Services
• Travel and Leisure
• Tobacco Page
• Technology Hardware and Equipment
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Selected listed companies are listed below:
i. Atlas Honda Ltd

ii. Bank Al-Falah
iii. National Bank of Pakistan
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iv. Murree Brewery

v. Dawood Hercules
vi. Gharibwal Cement Ltd
vii.Kohinoor Energy
viii.Pakistan Cables Ltd
ix. PICIC GROWTH FUND
x. Fauji Fertilizer
xi. ARIF HABIB SECURITIES
xii.Pakistan Telecommunication Ltd
xiii.Rafhan Maize Products Ltd
xiv.Security Papers Ltd
xv.Sui Northern Gas Pipelines Co Ltd
xvi.Packages Ltd.
xvii.Shifa International Hospitals Ltd
xviii.Millat Tractors Ltd
xix.International Industries Ltd
xx.Pakistan National Shipping Corp Ltd
xxi.EFU Life Assurance Ltd
xxii.Grays of Cambridge (PAK) Ltd
xxiii.GlaxoSmithKline
xxiv.TRG Pakistan (A)
xxv.Adamjee Insurance Co Ltd
xxvi.Attock Refinery Ltd
xxvii.Nishat Mills Page
xxviii.Pakistan International Airlines Corp (A)
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xxix.Pakistan Tobacco Co Ltd
xxx.Pakistan Telephone Cables Ltd
1.Companies Business Profile and

Stock Prices Trend
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The selected companies business profile and Stock Price Trends are
described below:
1.1. Atlas Honda Ltd
Atlas Honda. The Company's principal activity is to manufacture and market

motorcycles and auto parts. The Company is a joint venture between the Atlas Group
and Honda Motors Company of Japan. The Company also manufactures various hi-
tech components in-house in collaboration with leading parts manufacturers like
Showa and Toyo Denso.
Wright Quality Rating: LBA0
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1.2. Bank Al-Falah

Bank Al-falah Limited, through its subsidiaries, provides retail and
commercial banking, and corporate finance products and services in
Pakistan, the Asia Pacific, and the Middle East. The company offers
retail lending and deposits, banking services, trust and estates, private
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lending and deposits, banking services, trust and estates investment

advice, merchant/commercial/corporate cards, and private labels and
retail products. Its commercial banking products and services comprise
project finance, corporate finance, real estate, export finance, trade
finance, factoring, leasing, lending, guarantees, bills of exchange, and
deposits. The company also involves in trading and selling fixed
income, equity, foreign exchanges, commodities, credit, funding, own
position securities, lending and repos, brokerage debt, and prime
brokerage. In addition, it provides services related to mergers and
acquisition, underwriting, privatization, securitization, research, debts,
equity, syndication, IPO, and secondary private placements.
Additionally, Bank Alfalah Limited engages in the provision of safe
deposit lockers, foreign currency remittance facilities, and financial
advisory services. Further, the company offers a range of Islamic
products under personal, consumer, and corporate banking modes. As
of December 31, 2008, it operated a network of 282 branches,
including 48 Islamic Banking branches and 7 foreign branches, as well
as 5 in Bangladesh, 2 in Afghanistan, and an offshore banking unit in
Bahrain. The company was founded in 1992 and is headquartered in
Karachi, Pakistan.
Wright Quality Rating: DDNN
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1.3. National Bank of Pakistan

National Bank of Pakistan, through its subsidiaries, provides various
commercial banking and related products and services in Pakistan and
internationally. The company offers Islamic banking services, which
include deposit schemes, such as current deposit scheme, and profit
and loss sharing deposit scheme; and financing facilities, which
comprise of Murabaha and Ijarah, as well as provides letter of credit
facility, handling of remittances, issuance of bank drafts and pay
orders, collection of export bills, collection of local bills, government
collections, and utility bills collection services. Its treasury products
and services include Plain Vanilla FX products, Pakistan Investment Page
bonds, and derivatives products, which include currency options,
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interest rate swaps and FRAs, and cross currency swaps. The
company’s international banking trade services include letters of
credit, trade financing, international payments and collection services,
structured trade finance, document presentation and payment
services, pre– and post–shipment financing, bank–to–bank
reimbursements, export bills collection service, documentary credits,
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import finance, and shipping guarantee. It also provides personal

loans; agricultural finance, including agricultural credit, farm credit,
and production loans; corporate finance, such as working capital and
short term loans, medium term loans, and capital expenditure
financing; and home equity loan for home purchase, and home
construction and renovation, as well as for the purchase of land and
home construction. As of December 31, 2008, the company operated
1,254 branches in Pakistan and 22 branches internationally. National
Bank of Pakistan is headquartered in Karachi, Pakistan.
Wright Quality Rating: DCB5
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1.4. Murree Brewery
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Murree Brewery Company Limited engages in the manufacture and

sale of alcoholic and nonalcoholic products in Pakistan and
internationally. Its products include beers; nonalcoholic beers;
maturated malt whiskies; liquors, which comprise vodka, brandy, gin,
and rum; and diet and apple lemonades, and energy drinks. The

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company also produces and sells mango, orange, and lychee fruit
juices; mango, orange, lemon, and diet fruit squashes; conserves,
which comprise apple and strawberry jam, and orange marmalade;
malted and plain vinegar; tomato ketchups in various sizes, flavors,
and containers; and malt extracts. In addition, it manufactures and
sells glass bottles and jars. Murree Brewery Company Limited was
founded in 1860 and is based in Rawalpindi, Pakistan.
Wright Quality Rating: LCA1
1.5. Dawood Hercules

Dawood Hercules Chemicals Limited engages in the production,
purchase, and sale of urea fertilizers in Pakistan. It markets urea under
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the brand name Bubber Sher. The company also offers anhydrous
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ammonia, which is used in the manufacture of soda ash, fructose, and
other miscellaneous chemicals. Dawood Hercules Chemicals Limited
was incorporated in 1968 and is headquartered in Lahore, Pakistan.
Wright Quality Rating: DBB9

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1.6. Gharibwal Cement Ltd

Gharibwal Cement Limited produces and sells cement in Pakistan. The
company primarily produces ordinary Portland cement. It sells cement
under PAIDAR brand name. The company was formerly known as Ismail
Cement Industries Limited and changed its name to Gharibwal Cement
Limited in 1972. Gharibwal Cement Limited was incorporated in 1960
and is headquartered in Lahore, Pakistan.
1.7. Kohinoor Energy

Kohinoor Energy Limited. The Company's principal activity is to
generate and sell electricity in Pakistan. The Company operates in two
segments: Energy purchase price and Capacity purchase price. Under
the Energy purchase price segment, the Company earns its revenue Page
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through the transmission of electricity that it produces. Under the
Capacity purchase price segment, the earnings of the Company which
are due are considered. The Company owns, operates, generates and
maintains a furnace oil power station. The Company operates in
Pakistan.
Wright Quality Rating: LCB2

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1.8. Pakistan Cables Ltd

Pakistan Cables Limited manufactures and sells copper rods, wires,
cables and conductors, and aluminum extrusion profiles primarily in
Pakistan. It offers general wiring cables; low voltage and medium
voltage cables; telephone, intercom, and coaxial cables; and various
special cables, such as airfield lighting and control cables. The
company also offers aluminum sections for the construction and
architectural industry, as well provides copper rods. Pakistan Cables
Limited was founded in 1953 and is headquartered in Karachi,
Pakistan.
1.9. PICIC GROWTH FUND

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PICIC Growth Fund (Fund) is a closed end scheme and principal
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business is to invest in listed equity securities with an objective to
generate capital growth. The Fund is managed in accordance with the
provisions of the Non-Banking Finance Companies (Establishment and
Regulation) Rules, 2003 (NBFC Rules, 2003) and the certificates of the
Fund are listed on all Stock Exchanges of Pakistan viz: Karachi, Lahore
and Islamabad. PICIC Asset Management Company Limited is the

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Investment Adviser and Central Depository Company of Pakistan

Limited is the trustee of the Fund.
1.10.Fauji Fertilizer
Fauji Fertilizer Company Limited, together with its subsidiary, Fauji
Fertilizer Bin Qasim Limited, engages in the manufacture, purchase,
and marketing of fertilizers and chemicals in Pakistan. The company
offers ammonia/urea under the Sona brand name, as well as involves
in the import of nitrogen, phosphate, and potash based fertilizers. Fauji
Fertilizer Company was incorporated in 1978 and is headquartered in
Rawalpindi, Pakistan.
1.11.ARIF HABIB SECURITIES Page

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Arif Habib Securities Limited, together with its subsidiaries, operates in
the financial services industry in Pakistan. The company offers
securities broker and corporate finance services, commodities
brokerage services, investment services, and financial advisory
services. It also operates as an asset management company managing
open and closed-end mutual funds. In addition, the company, through

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Arif Habib Bank Limited, provides various commercial banking services,

including current accounts, saving accounts, daily product accounts,
term deposits, and prepaid card’s, as well as offers ATM withdrawal
and personal accidental insurances. Arif Habib Securities Limited was
incorporated in 1994 and is based in Karachi, Pakistan.
1.12.Pakistan Telecommunication Ltd

Pakistan Telecommunication Company Limited(PTCL). The Group's
principal activity is to provide telecommunication services. The Group
provides domestic and international services and also other
communication facilities throughout Pakistan. The Group also provides
services to territories in Azad Jammu and Kashmir and northern areas.
It also provides cellular mobile telephonic services throughout Pakistan Page
and Azad Jammu and Kashmir.
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1.13.Rafhan Maize Products Ltd

Rafhan Maize Products Co. Ltd. manufactures and sells food
ingredients and industrial products in Pakistan. It offers a range of
industrial starches, liquid glucose, dextrose, dextrin, and gluten meal
products. The company’s products include corn, maize, modified,
oxidized, cationic, and specialty starches; corn flour; powder glues;
powder/liquid adhesives; dextrose monohydrate; liquid glucose and
corn syrup; maltose syrup; liquid caramel color; hydrol; maize gluten
meals/feeds, maize gluten meals, and corn germ meals; and maize
bran, maize oil cake, and maize steeping liquor. It sells its products to
textile, paper, corrugation, chemicals, non-food, pharmaceutical,
confectionery, adhesives, foundry, food energy drinks, baking, tobacco,
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sweet-meats, brewing, poultry/cattle/fish feeds, and antibiotics
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industries. The company is headquartered in Faisalabad, Pakistan.
Rafhan Maize Products Co. Ltd. is a subsidiary of Corn Products
International Inc.

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1.14.Security Papers Ltd
Security Papers Limited engages in the manufacture and sale of

specialized paper for banknotes and non-banknote security documents
in Pakistan and internationally. The company offers paper for bank
notes, financial instruments, and university degree certificates. It also
offers other types of security paper, such as judicial and non judicial
stamp paper, paper for identity cards, birth certificates, paper for
driving licenses, bond paper, and paper incorporating an organization’s
insignia. The company was founded in 1965 and is headquartered in
Karachi, Pakistan.
1.15.Sui Northern Gas Pipelines Co Ltd

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Sui Northern Gas Pipelines Limited engages in the purchase,
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transmission, distribution, and supply of natural gas in Pakistan. It also
plans, designs, and constructs pipelines for other organizations. As of
June 30, 2009, the company’s transmission system comprised
approximately 7,347 kilometers of pipeline; and distribution system
consisted of 67,449 kilometers of pipeline. Sui Northern Gas Pipelines
Limited serves various consumers in commercial, domestic, general

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industry, fertilizer, and power and cement sectors. The company was
founded in 1963 and is based in Lahore, Pakistan.
1.16.Packages Ltd
Packages Limited engages in the manufacture and sale of paper,
paperboard, packaging materials, and tissue products in Pakistan. The
company offers various types of paper, including test liner, corrugated
medium paper/fluting, wrapping paper, high gloss writing paper, and
poster paper; and board products, such as liquid packaging board, food
grade board, duplex board / chipboard, bleached board, tobacco board
and cardboard, and liner board. It also provides corrugated cartons for
the textile, food, tobacco, soap, and detergent industries. In addition,
the company offers flexible packaging products, such as packaging Page
films, plastic films, and aluminum foil; specialized services, including
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rotogravure printing and sleeve-making; and paper to produce
laminates of two or more layers for providing layered protection
against moisture, gases, and odors. Further, it offers consumer
products, such as tissue products, personal hygiene products, and
paper products. Packages Limited also manufactures and sells finished
and semi-finished inks; and engages in real estate development and
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construction activities. The company was founded in 1957 and is

headquartered in Lahore, Pakistan.
1.17.Shifa International Hospitals Ltd

Shifa International Hospitals Limited engages in the establishment and
operation of medical centers and hospitals in Pakistan. The company
offers clinical services, which include medicine services related to
internal medicine, cardiology, gastroentrology, pulmonology,
neurology, nephrology, endocrinology, radiation oncology, psychiatry,
and dermatology; surgical services, including general, cardiac,
orthopedic, neuro, urology clinic/kidney transplant, plastic, and
pedriatrics, as well as ear, nose, and throat surgery services; obstetric
and gynecology, dentistry, ophthalmology, rehabilitation, and home Page
health services; and specialized services consisting of emergency room
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services, medical checkups, pharmacy services, enhanced external
counter pulsation services, and weight loss programs. It also provides
clinical and hospital support services; diagnostic services that
comprise clinical laboratory, diagnostic imaging, and specialized
diagnostic services; and online services. The company was
incorporated in 1987 and is headquartered in Islamabad, Pakistan.
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1.18.Millat Tractors Ltd

Millat Tractors Limited engages in the assembly, manufacture, sale,
and export of agricultural tractors, implements, and multi application
products in Pakistan. It offers a range of tractors from 50 horse power
(hp) to 85 hp; diesel engines; diesel generating sets and prime movers;
and forklift trucks. It also provides agricultural implements, such as
various types of ploughs, farm trailers, lawn mowers, jib cranes, and
agricultural loaders. In addition, it provides after-sales services.
Further, the company, through its subsidiary, Millat Industrial Products
Limited, manufactures vehicles, industrial and domestic batteries,
cells, and components. It offers its products through dealers. Millat
Tractors Limited was founded in 1964 and is headquartered in Lahore,
Pakistan.
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1.19.International Industries Ltd

International Industries Ltd. The Group's principal activity is to
manufacture and market hot and cold rolled based steel pipes and
tubes in Pakistan. It's products include GI pipes, CR Tubes, API pipes,
Black pipes, PE pipes, Structural pipes and CR strips. The Black pipes.

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GI Pipes are primarily used in transmission of water, oil, natural gas

and other fluids. CR Tubes are used in bicycles, motorcycles,
automotive sectors; transformers, fans, furniture and other mechanical
and general purpose industries. IIL welded Line Pipes are used in
natural gas and oil pipelines and distribution systems. The Black pipes
are used for scaffolding, mechanical fabrication, building and other
general purpose fabrication. PE pipes are used by Telecom Companies,
Gas Companies and Water/Sewerage Boards. L, T and Z profiles which
are used for door and window frames.
1.20.Pakistan National Shipping Corp Ltd

Pakistan National Shipping Corporation operates in the shipping
industry in Pakistan and internationally. It engages in the charter of
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vessels, transportation of cargo, and other related services, as well as
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in the provision of commercial, technical, administrative, financial, and
other services related to shipping to third parties. As of September 30,
2009, the company operated a fleet of 10 vessels, including bulk
carriers, oil tankers, and combi vessels with a total carrying capacity of
453,748 DWT. Pakistan National Shipping Corporation also involves in
the rental of real estate properties comprising commercial buildings

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and spaces under lease arrangements; and management of a repair

workshop. The company is headquartered in Karachi, Pakistan.
1.21.EFU Life Assurance Ltd

EFU Life Assurance Limited operates as a life insurance company in
Pakistan. The company offers unit-linked products, critical illness
products, education planning products, inflation protection benefit
products, pension plans, and Islamic fund products. It offers prosperity
for life, capital growth bond, savings, executive pension, security, loan
protection, and accident and hospitalization plans for individuals. EFU
Life Assurance offers various group coverage products, including
death, accidental death benefit, accidental disability benefit,
fortnightly income benefit, natural disability benefit, terminal illness
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benefit, critical illness cover, loan insurance, and provident fund
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insurance products. It operates a branch network of approximately 100
offices throughout the country. The company was founded in 1992 and
is headquartered in Karachi, Pakistan.

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1.22. Grays of Cambridge (PAK) Ltd

The company which was incorporated as a private limited company went public in Apri
listed on Karachi and Lahore Stock Exchanges in January 1987. The issue was very wel
public and was over-subscribed by 200 times, a record response by public. Since then,
company has a very strong demand which is well supported by the fact that its 10 rupe
touched a 450 rupees price and is being quoted at Rupees 375 at present.
In the recent years GRAYS PAKISTAN has also worked on expansion in its corporate set up.
Consequently, it acquired DAWN SPORTS (PRIVATE) LIMITED, a hockey manufacturing unit, as a wholly
owned subsidiary. At the same time, a plan for diversification in financial and economic activities is also
underway, and as a result thereof, the Company co-sponsored a leasing company named GRAYS
LEASING LIMITED, listed on Karachi and Lahore Stock Exchanges with an equity capital of 100 million
rupees which was also over subscribed even under the prevailing crunch in the investment market.
1.23.GlaxoSmithKline
GlaxoSmithKline plc, a global healthcare group, engages in the
creation and discovery, development, manufacture, and marketing of Page
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pharmaceutical products, including vaccines, over-the-counter (OTC)
medicines, and health-related consumer products. PHARMACEUTICAL
PRODUCTS The Company’s principal pharmaceutical products include
medicines in the following therapeutic areas: respiratory, anti-virals,
central nervous system, cardiovascular and urogenital, metabolic, anti-
bacterials, oncology and emesis, dermatalogicals, and vaccines.
Respiratory: The company’s products include Seretide/Advair,
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Flixotide/Flovent, and Serevent, which are used for the treatment of

asthma/cardiovascular disease, pain, and depression (COPD); and
Veramyst, which is used for the treatment of rhinitis. Anti-Virals: The
company’s products include Epzicom/Kivexa, Combivir, Trizivir,
Agenerase, Lexiva, Epivir, and Ziagen, which are used for the
treatment of HIV/AIDS; Valtrex, which is used for the treatment of
genital herpes, coldsores, and shingles; Zeffix, which is used for the
treatment of chronic hepatitis B; and Relenza, which is used for the
treatment of influenza. Central Nervous System: The company’s
product include Lamictal, which is used for the treatment of epilepsy,
bipolar disorder; Imigran/Imitrex, which is used for the treatment of
migraine; Seroxat/Paxil, which is used for the treatment of depression
and various anxiety disorders; Requip, which is used for treatment of
Parkinson’s disease and restless legs syndrome; and Treximet, which is
used for the treatment of migraine. Cardiovascular and Urogenital: The
company’s products include Avodart, which is used for the treatment
of benign prostatic hyperplasia; Lovaza, which is used for the
treatment of very high triglycerides; Coreg CR, which is used for the
treatment of mild-to-severe heart failure, hypertension, and left
ventricular dysfunction post MI; Fraxiparine, which is used for the
treatment of deep vein thrombosis and pulmonary embolism; Arixtra,
which is used for the treatment of deep vein thrombosis and
pulmonary embolism; and Vesicare, which is used for the treatment of
overactive bladder. Metabolic: The company’s products, Avandia and Page
Avandamet, are used for the treatment of type 2 diabetes. Anti-
29
Bacterials: The company’s products include Augmentin, which is used
for the treatment of common infections; and Altabax, which is used for
the treatment of skin infections. Oncology and Emesis: The company’s
products include Arzerra, which is used for the treatment of refractory
chronic lymphocytic leukaemia; Hycamtin, which is used for the
treatment of ovarian cancer, small cell lung cancer, and cervical
A
cancer; Promacta/Revolade, which is used for the treatment of

idiopathic thrombocytopenic purpura; Tykerb/Tyverb, which is used for
the treatment of advanced and metastatic breast cancer in HER2
positive patients; and Votrient, which is used for the treatment of
metastatic renal cell carcinoma. Vaccines: The company's products
include Infanrix/Pediarix, which is used for the treatment of diphtheria,
tetanus, pertussis, polio, and hepatitis B (HepB); Fluarix and FluLaval,
which are used for the treatment of seasonal influenza; Cervarix, which
is used for the treatment of human papilloma type 16 & 18; and
Rotarix is used for the treatment of rotavirus gastroenteritis.
Competition The company's competitors include Abbott Laboratories;
Amgen; AstraZeneca; Bristol-Myers Squibb; Eli Lilly; Johnson & Johnson;
Merck; Novartis; Pfizer; Roche Holdings; and Sanofi-Aventis.
CONSUMER HEALTHCARE PRODUCTS The company’s portfolio
comprises three main categories: Over-the-counter (OTC) medicines,
Oral healthcare, and Nutritional healthcare. OTC Medicines: The
company's OTC medicines include Panadol, the global
paracetamol/acetaminophen analgesic; smoking control products, such
as NicoDerm, NiQuitin CQ, Nicabate and in the U.S.A, Nicorette; and
other brands include Breathe Right nasal strips, Tums, Citrucel, Contac,
and FiberChoice. Oral Healthcare: The company's oral healthcare
products include Aquafresh, a range of toothpastes, toothbrushes and
mouthwashe s; Sensodyne, a range of toothpastes, toothbrushes and
mouthwashes, including Pronamel to protect from acid erosion; Page
Biotene, the treatment for dry mouth; Polident, Poligrip, and Corega
30
denture care cleansers and adhesives; and other brands include Odol,
Macleans, and Dr Best. Nutritional Healthcare: The company's
nutritional healthcare products include Lucozade, a range of energy
and sports drinks; Horlicks, a range of milk-based malted food and
chocolate drinks; and Ribena, a blackcurrant juice-based drink.
Competition The company's major competitors include the
A
international companies, such as Colgate-Palmolive, Johnson &

Johnson, Procter & Gamble, Unilever, and Pfizer. Its major competitor
products in OTC medicines are: in the U.S.A: Metamucil (laxative),
Pepcid (indigestion) and private label smoking control products; and in
the U.K.: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and
Nicorette and Nicotinell (smoking control treatments). In Nutritional
healthcare the major competitors to Horlicks are Ovaltine and Milo
malted food and chocolate drinks. Competitors to Ribena are primarily
local fruit juice products, while Lucozade competes with other energy
drinks. Significant Events On March 03, 2010, Abbott Laboratories
announced that it has entered into an agreement with GlaxoSmithKline
plc (GSK) to develop a molecular diagnostic test intended for use as an
aid in selecting patients who may benefit from a skin cancer treatment
in development by GSK. In March 2010, to-BBB announced that it has
entered into a research collaboration with GlaxoSmithKline (GSK)
involving to-BBB's proprietary G-Technology in delivering a biological
compound to the brain. On April 29, 2010, Eyegate Pharmaceuticals,
Inc. announced that they have established a research collaboration
with GlaxoSmithKline plc to evaluate the delivery of various GSK
therapies to the anterior (front) and posterior (back) tissues of the eye
using the EyeGate II delivery system. On May 10, 2010, BioMérieux
S.A. and GlaxoSmithKline plc signed an agreement to develop a
molecular test for cancer. BioMérieux S.A. has also entered into an
agreement with GlaxoSmithKline plc under which the two partners Page
would develop a theranostic test designed to identify the appropriate
31
metastatic melanoma treatment. On May 11, 2010, GlaxoSmithKline
plc said that it has signed a strategic alliance with Dong-a
Pharmaceutical Co. Ltd. The alliance would initially co-promote
selected GSK and Dong-A pharmaceutical products for use in primary
care. History GlaxoSmithKline plc was founded in 1935.

A
1.24. TRG Pakistan (A)

The Resource Group (TRG) owns and operates call centers in Pakistan.
The company was founded in 2002 and is based in Karachi, Pakistan.
1.25.Adamjee Insurance Co Ltd

Adamjee Insurance Company Limited. The Company's principal activity
is to underwrite marine, fire, motor and miscellaneous insurance. The
miscellaneous insurance covers engineering, bonding and surety,
bankers' insurance, burglary and theft, kidnap and ransom and medical
insurance. The other activities of the Company include investment and
money management activities. The Company operates in Pakistan,
Page
United Kingdom, United Arab Emirates and Saudi Arabia. 32

A
1.26.Attock Refinery Ltd

Attock Refinery Limited. The Company's principal activity is to refine
crude oil. It also produces premium motor gasoline, high speed diesel,
kerosene oil, furnace fuel oil, low sulfur furnace fuel oil, aviation fuels,
paving asphalt, cut back asphalt, polymer modified bitumen, mineral
turpentine, light diesel oil, naphtha, liquefied petroleum gas, Jute
batching oil and solvent oil. The Company operates in Pakistan.
Page
33

A
1.27.Nishat Mills
Nishat Mills Limited. The Group's principal activity is to manufacture
spins, combs, weaves, bleaches, dyes, prints, stitches, buys and sells
textiles. It deals in yarn, linen, cloth and other goods and fabrics made
from raw cotton, synthetic fibre and cloth. The Group's plants are
located at Faisalabad, Sheikhupura, Lahore and Feroze Watwan.
1.28.Pakistan International Airlines Corp (A)

Pakistan International Airlines. The Group's principal activity is to
provide air transport services. The Group also provides engineering
and allied services. The Group operates in two segments namely
Page
Airline Operation and Hotel Operations. It operates in three continents
North America, Europe and Asia.
34

A
1.29.Pakistan Tobacco Co Ltd
Pakistan Tobacco Company Limited is part of British American

Tobacco, the world's most international tobacco group, with brands
sold in 180 markets around the world. Its operations in Pakistan
began in 1947, making us one of Pakistan's first foreign investments.
We produce high quality tobacco products to meet the diverse
preferences of millions of consumers, and we work in all areas of the
business from crop to consumer. The company is committed to
providing consumers with excellent products and to demonstrating
that we are meeting our commercial goals in the manner expected of
a responsible tobacco group in the 21st century.
Page
35

A
1.30.Pakistan Telephone Cables Ltd

Pakistan Telephone Cables Limited. The Company's principal activity is
to manufacture and market telecommunication cables. It undertakes
the sale of its cable mainly to Pakistan Telecommunication Company
Limited. The Company's plant has a capacity to produce two and a half
million pair kilometer of various sizes of Telecommunication Cables
from ten pairs to twelve hundred pairs per year. The Company
operates in its domestic market.
Page
36

A
2.Literature Review
For literature review as necessary for project we have read certain
articles and terms on the Internet and the best article we found that is
on Modern Portfolio Theory (MPT) which contain certain terms and
concepts required to us for the broad understanding. The brief
description is defined below:
2.1. Modern portfolio theory
Page
37
Capital Market Line
Modern portfolio theory (MPT) is a theory of investment which tries

to maximize return and minimize risk by carefully choosing different
assets. Although MPT is widely used in practice in the financial industry
and several of its creators won a Nobel prize for the theory, in recent

A
years the basic assumptions of MPT have been widely challenged by

fields such as behavioral economics.
MPT is a mathematical formulation of the concept of diversification in

investing, with the aim of selecting a collection of investment assets
that has collectively lower risk than any individual asset. This is
possible, in theory, because different types of assets often change in
value in opposite ways. For example, when the prices in the stock
market fall, the prices in the bond market often increase, and vice
versa. A collection of both types of assets can therefore have lower
overall risk than either individually.
More technically, MPT models an asset's return as a normally

distributed random variable, defines risk as the standard deviation of
return, and models a portfolio as a weighted combination of assets so
that the return of a portfolio is the weighted combination of the assets'
returns. By combining different assets whose returns are not
correlated, MPT seeks to reduce the total variance of the portfolio. MPT
also assumes that investors are rational and markets are efficient.
MPT was developed in the 1950s through the early 1970s and was
considered an important advance in the mathematical modeling of
finance. Since then, much theoretical and practical criticism has been
leveled against it. These include the fact that financial returns do not
follow a Gaussian distribution and that correlations between asset
Page
classes are not fixed but can vary depending on external events
(especially in crises). Further, there is growing evidence that investors
38
are not rational and markets are not efficient.
2.2. Risk and return

MPT assumes that investors are risk averse, meaning that given two
assets that offer the same expected return, investors will prefer the
less risky one. Thus, an investor will take on increased risk only if

A
compensated by higher expected returns. Conversely, an investor who

wants higher returns must accept more risk. The exact trade-off will
differ by investor based on individual risk aversion characteristics. The
implication is that a rational investor will not invest in a portfolio if a
second portfolio exists with a more favorable risk-return profile – i.e., if
for that level of risk an alternative portfolio exists which has better
expected returns.
MPT further assumes that the investor's risk / reward preference can
be described via a quadratic utility function. The effect of this
assumption is that only the expected return and the volatility (i.e.,
mean return and standard deviation) matter to the investor. The
investor is indifferent to other characteristics of the distribution of
returns, such as its skew (measures the level of asymmetry in the
distribution) or kurtosis (measure of the thickness or so-called "fat
tail").
Note that the theory uses a parameter, volatility, as a proxy for risk,
while return is an expectation on the future. This is in line with the
efficient market hypothesis and most of the classical findings in
finance. There are problems with this, see criticism.
Under the model:
• Portfolio return is the proportion-weighted combination of the

constituent assets' returns.
• Portfolio volatility is a function of the correlation ρ of the Page

39
component assets. The change in volatility is non-linear as the
weighting of the component assets changes.
In general:
• Expected return:-

A
Where Ri is return and wi is the weighting of component

asset i.
• Portfolio variance:-
where . Alternatively the expression can be written as:
,
where ρij = 1 for i=j.
• Portfolio volatility:-
For a two asset portfolio:-
• Portfolio return:
• Portfolio variance:
For a three asset portfolio:-
• Portfolio return:
• Portfolio variance:
Page
1.1. Diversification
40
An investor can reduce portfolio risk simply by holding combinations of

instruments which are not perfectly positively correlated (correlation
coefficient -1<(r)<1)). In other words, investors can reduce their
exposure to individual asset risk by holding a diversified portfolio of

A
assets. Diversification may allow for the same portfolio return with
reduced risk.
If all the assets of a portfolio have a correlation of +1, i.e., perfect

positive correlation, the portfolio volatility (standard deviation) will be
equal to the weighted sum of the individual asset volatilities. Hence
the portfolio variance will be equal to the square of the total weighted
sum of the individual asset volatilities.[2]
If all the assets have a correlation of 0, i.e., perfectly uncorrelated, the

portfolio variance is the sum of the individual asset weights squared
times the individual asset variance (and the standard deviation is the
square root of this sum).
If correlation coefficient is less than zero (r=0), i.e., the assets are
inversely correlated, the portfolio variance and hence volatility will be
less than if the correlation coefficient is 0.
1.2. The risk-free asset

The risk-free asset is the (hypothetical) asset which pays a risk-free
rate. In practice, short-term Government securities (such as US
treasury bills) are used as a risk-free asset, because they pay a fixed
rate of interest and have exceptionally low default risk. The risk-free
asset has zero variance in returns (hence is risk-free); it is also
uncorrelated with any other asset (by definition: since its variance is
zero). As a result, when it is combined with any other asset, or portfolio
Page
of assets, the change in return and also in risk is linear.
41
Because both risk and return change linearly as the risk-free asset is
introduced into a portfolio, this combination will plot a straight line in
risk-return space. The line starts at 100% in the risk-free asset and
weight of the risky portfolio = 0 (i.e., intercepting the return axis at the
risk-free rate) and goes through the portfolio in question where risk-
free asset holding = 0 and portfolio weight = 1.

A
Using the formulae for a two asset portfolio as above:
• Return is the weighted average of the risk free asset, f,

and the risky portfolio, p, and is therefore linear:
• Since the asset is risk free, portfolio standard deviation is

simply a function of the weight of the risky portfolio in the
position. This relationship is linear.
1.1. Capital allocation line

The capital allocation line (CAL) is the line of expected return
plotted against risk (standard deviation) that connects all portfolios
that can be formed using a risky asset and a riskless asset. It can be
proven that it is a straight line and that it has the following equation.
In this formula P is the risky portfolio, F is the riskless portfolio, and C is

a combination of portfolios P and F. Page
42
1.2. The efficient frontier

A
Efficient Frontier. The hyperbola is sometimes referred to as the

'Markowitz Bullet'
Every possible asset combination can be plotted in risk-return space,

and the collection of all such possible portfolios defines a region in this
space. The line along the upper edge of this region is known as the
efficient frontier (sometimes "the Markowitz frontier"). Combinations
along this line represent portfolios (explicitly excluding the risk-free
alternative) for which there is lowest risk for a given level of return.
Conversely, for a given amount of risk, the portfolio lying on the
efficient frontier represents the combination offering the best possible
return. Mathematically the Efficient Frontier is the intersection of the
Set of Portfolios with Minimum Variance (MVS) and the Set of Portfolios
with Maximum Return. Formally, the efficient frontier is the set of
maximal elements with respect to the partial order of product order on
risk and return, the set of portfolios for which one cannot improve both Page
43
risk and return.
The efficient frontier is illustrated above, with return μp on the y-axis,

and risk σp on the x-axis; an alternative illustration from the diagram in
the CAPM article is at right.
The efficient frontier will be convex – this is because the risk-return

characteristics of a portfolio change in a non-linear fashion as its

A
component weightings are changed. (As described above, portfolio risk

is a function of the correlation of the component assets, and thus
changes in a non-linear fashion as the weighting of component assets
changes.) The efficient frontier is a parabola (hyperbola) when
expected return is plotted against variance (standard deviation).
The region above the frontier is unachievable by holding risky assets

alone. No portfolios can be constructed corresponding to the points in
this region. Points below the frontier are suboptimal. A rational investor
will hold a portfolio only on the frontier.
Matrices are preferred for calculations of the efficient frontier. In matrix
form, for a given "risk tolerance" , the efficient front is found

by minimizing the following expression:
wTΣw − q * RTw
where
• w is a vector of portfolio weights and
wi =
∑
1.
i
• (The weights can be negative, which means investors can
short a security.);
• Σ is the covariance matrix for the assets in the portfolio;
• q is a "risk tolerance" factor, where 0 results in the

Page
portfolio with minimal risk and results in the portfolio
44
with maximal return; and
• R is a vector of expected returns.
The front is calculated by repeating the optimization for various .

A
Many software packages, including Microsoft Excel, MATLAB,

Mathematica and R, provide optimization routines suitable for the
above problem.
1.1. Portfolio leverage

An investor adds leverage to the portfolio by borrowing the risk-free
asset. The addition of the risk-free asset allows for a position in the
region above the efficient frontier. Thus, by combining a risk-free asset
with risky assets, it is possible to construct portfolios whose risk-return
profiles are superior to those on the efficient frontier.
• An investor holding a portfolio of risky assets, with a holding in

cash, has a positive risk-free weighting (a de-leveraged
portfolio). The return and standard deviation will be lower than
the portfolio alone, but since the efficient frontier is concave, this
combination will sit above the efficient frontier – i.e., offering a
higher return for the same risk as the point below it on the
frontier.
• The investor who borrows money to fund his/her purchase of the

risky assets has a negative risk-free weighting – i.e., a leveraged
portfolio. Here the return is geared to the risky portfolio. This
combination will again offer a return superior to those on the
frontier.
1.1. The market portfolio

Page
45
The efficient frontier is a collection of portfolios, each one optimal for a
given amount of risk. A quantity known as the Sharpe ratio represents
a measure of the amount of additional return (above the risk-free rate)
a portfolio provides compared to the risk it carries. The portfolio on the
efficient frontier with the highest Sharpe Ratio is known as the market
portfolio, or sometimes the super-efficient portfolio; it is the tangency-
portfolio in the above diagram. This portfolio has the property that any
A
combination of it and the risk-free asset will produce a return that is

above the efficient frontier—offering a larger return for a given amount
of risk than a portfolio of risky assets on the frontier would.
1.2. Capital market line

When the market portfolio is combined with the risk-free asset, the
result is the Capital Market Line. All points along the CML have superior
risk-return profiles to any portfolio on the efficient frontier. Just the
special case of the market portfolio with zero cash weighting is on the
efficient frontier. Additions of cash or leverage with the risk-free asset
in combination with the market portfolio are on the Capital Market
Line. All of these portfolios represent the highest possible Sharpe ratio.
The CML is illustrated above, with return μp on the y-axis, and risk σp on
the x-axis.
One can prove that the CML is the optimal CAL and that its equation is
1.3. Asset pricing using MPT

A rational investor would not invest in an asset which does not improve
the risk-return characteristics of his existing portfolio. Since a rational
investor would hold the market portfolio, the asset in question will be
added to the market portfolio. MPT derives the required return for a
correctly priced asset in this context. Page
46
1.4. Systematic risk and specific risk
Specific risk is the risk associated with individual assets - within a
portfolio these risks can be reduced through diversification (specific
risks "cancel out"). Specific risk is also called diversifiable, unique,
unsystematic, or idiosyncratic risk. Systematic risk (a.k.a. portfolio risk
or market risk) refers to the risk common to all securities - except for

A
selling short as noted below, systematic risk cannot be diversified

away (within one market). Within the market portfolio, asset specific
risk will be diversified away to the extent possible. Systematic risk is
therefore equated with the risk (standard deviation) of the market
portfolio.
Since a security will be purchased only if it improves the risk / return

characteristics of the market portfolio, the risk of a security will be the
risk it adds to the market portfolio. In this context, the volatility of the
asset, and its correlation with the market portfolio, is historically
observed and is therefore a given (there are several approaches to
asset pricing that attempt to price assets by modelling the stochastic
properties of the moments of assets' returns - these are broadly
referred to as conditional asset pricing models). The (maximum) price
paid for any particular asset (and hence the return it will generate)
should also be determined based on its relationship with the market
portfolio.
Systematic risks within one market can be managed through a

strategy of using both long and short positions within one portfolio,
creating a "market neutral" portfolio.
1.5. Capital asset pricing model

The asset return depends on the amount paid for the asset today. The
price paid must ensure that the market portfolio's risk / return
characteristics improve when the asset is added to it. The CAPM is a Page
47
model which derives the theoretical required return (i.e., discount rate)
for an asset in a market, given the risk-free rate available to investors
and the risk of the market as a whole. The CAPM is usually expressed:
• β, Beta, is the measure of asset sensitivity to a movement in the

overall market; Beta is usually found via regression on historical
A
data. Betas exceeding one signify more than average "riskiness";

betas below one indicate lower than average.
• is the market premium, the expected excess

return of the market over the risk-free rate.
Once the expected return, E(ri), is calculated using CAPM, the future
cash flows of the asset can be discounted to their present value using
this rate to establish the correct price for the asset. A more risky stock
will have a higher beta and will be discounted at a higher rate; less
sensitive stocks will have lower betas and be discounted at a lower
rate. In theory, an asset is correctly priced when its observed price is
the same as its value calculated using the CAPM derived discount rate.
If the observed price is higher than the valuation, then the asset is
overvalued; it is undervalued for a too low price.
(1) The incremental impact on risk and return when an additional risky
asset, a, is added to the market portfolio, m, follows from the formulae
for a two asset portfolio. These results are used to derive the asset
appropriate discount rate.
Risk =
Hence, risk added to portfolio =

but since the weight of the asset will be relatively low,
Page
i.e. additional risk =
48
Return =
Hence additional return =

(2) If an asset, a, is correctly priced, the improvement in risk to return
achieved by adding it to the market portfolio, m, will at least match the
gains of spending that money on an increased stake in the market

A
portfolio. The assumption is that the investor will purchase the asset
with funds borrowed at the risk-free rate, Rf; this is rational if
.
Thus:
i.e. :
i.e. :
is the “beta”, β -- the covariance between the

asset and the market compared to the variance of the
market, i.e. the sensitivity of the asset price to movement
in the market portfolio.
1.Data Analysis and Findings

We have done this project in the certain stages. First we record the
prices of each stock from the period December 2004 to December
2009, which accounts for 61 months prices of 30 stocks (companies).
We have collected all these prices from website URL:
www.brecorder.com. The companies which we have selected are listed
in KSE 100 index.
After the collection of Data, we put all these prices in the MS Excel
Spread Sheet as it is the necessity of project. MS Excel is also suitable
Page
from the perspective applying formulas in order to calculate the
49
specific terms e.g. Portfolio Expected Mean, Standard Deviation and
Beta.
After entering all the data in the table, we began to perform specific
formulas in order to calculate the required variables and values. The
steps after entering the data are described below:

A
1.1. Return Matrix

We have calculated Return Matrix based on the formula mention
below:
Syntax
= (New Price of Stock- Previous Period Price)/Previous Period Price
Formula Used
= (C4-C3)/C3
Window Display
So by obtaining the Return Matrix we will be remained with the 60 Page

50
values.
After calculating the Return Matrix, we also obtain Mean by applying

following formula:
Syntax

A
=Average( Return Matrix Value of each stock)
Formula Used
=AVERAGE(C68:C127)
At this stage we have calculated 30 Mean Values.
Next we have calculated the Beta of Each Stock, which acquired by

using following formula:
Syntax
=Slope(All values of specific stock’s retun matrix, All values of KSE 100
Index)
Formula Used
=SLOPE(C68:C127,$AG$68:$AG$127)
1.2. Excess Mean Matrix

Now, we have calculated 60 values of Excess Mean Matrix obtained by
using following formula:
Syntax
=(Specific Period Return Matrix- Mean of Return Matrix of each stock.
Page
51
Formula Used
=C68-$C$128
Window Display

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1.3. Transpose of Excess Matrix

We have obtained the transpose of Excess Matrix in this step.
Transpose is normally used to the rows into columns and the columns
into rows.
Syntax
=(All cells of Excess Mean Matrix excluding the Index Price)
Formula Used
=TRANSPOSE(C133:AF192)
And press Ctrl+Alt+Enter after writing the formula
Page
52
Window Display

A
In this step we have also taken the transpose of Mean Values in the
Return Matrix Table.
Syntax
=Transpose(All Mean Values of Retrun Matrix)
Formula Used
=TRANSPOSE(C128:AF128)
And press Ctrl+Alt+Enter after writing the formula.

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53
1.4. Variance Covariance
Now, we have drawn the Variance Covariance Table and calculated the
values by using following formula:
Syntax
Select all cells where the data is to placed and enter in fx space:

A
=mmult( All cells of Transpose of Excess Mean, All cells of Excess Mean
Matrix)/Number of values
Formula Used
=MMULT(C196:BJ225,C133:AF192)/60
And press Ctrl+Alt+Enter, you will get Variance Covariance

Window Display
1.5. Case 1
In this case we assume that the Risk-Free-Rate is equal is Zero. And Page
54
perform essential steps.
i. ‘R-C’: The values of R-C is obtained by using following formula:
Syntax
=(Mean of Stock- RFR)

A
Formula Used
=AH229-$G$261
ii. Z-Portfolio: The values of z-portfolio is obtained by using

following formula:
Syntax
=mmult(minverse(All cells of Variance Covariance), All cells of R-C)
Formula Used
=MMULT(MINVERSE(C229:AF258),B264:B293)
iii. Portfolio 1: The values of portfolio-1 is obtained by using

following formula:
Syntax:
=(First Value of Z-Portfolio/Sum of Z-Portfolio)
Formula Used
=D264/$D$294
Case 1
When Constant is Zero 0%
Z- Portfolio Page
55
R-C Portfolio 1
0.0053522
1 62 1.780750909 0.541258585
-
0.0057423
2 16 -4.529687862 -1.392261462
0.0116087
3 12 4.821796264 1.482044972
0.0031365
4 63 2.034287621 0.625266099
A
0.0130058
5 36 1.327689845 0.408083617
0.0105874
6 7 1.37045051 0.421226692
0.0030381
7 29 3.358626619 1.032319787
-
0.0092658
8 13 -2.140040641 -0.657770735
-
0.0079073
9 01 -2.761769533 -0.848867606
1 0.0007782
0 74 6.913430119 2.124937219
-
1 0.0038944
1 31 -1.007830047 -0.309770337
-
1 0.0076617
2 73 -1.401781583 -0.430856725
1 0.0267871
3 13 0.781781343 0.240291179
-
1 0.0151960
4 25 -1.096407449 -0.336995812
-
1 0.0045010
5 66 -2.503831393 -0.769586793
1 0.0046366
6 67 -0.354329316 -0.108907957
1 0.0051611
7 66 0.332541481 0.102211168
1 0.0156640
8 65 -0.733977762 -0.225598095
-
1 0.0131439
9 09 -0.374730068 -0.115178407
Page
2 0.0086180
0 54 0.628522851 0.193185087
56
2 0.0116590
1 9 0.055756611 0.017137556
2 0.0062048
2 68 0.425740339 0.130857111
-
2 0.0027330
3 77 -3.689311489 -1.133960301
2 1.5062188
4 41 0.000447173 0.000137445
2 0.0286135 2.083293244 0.640328647

A
5 86
2 0.0205625
6 59 0.548744025 0.168663975
2 0.0117098
7 19 -0.519950777 -0.159813977
-
2 0.0200222
8 21 -2.564512536 -0.788237972
2 0.0299255
9 78 0.46777689 0.143777619
3 0.0109350
0 76 0.036543385 0.011232109
Su
m 3.290018776 1
1.1. Case-II
In this case, we have taken the value of RFR is equal to 10.12%.
For RFR calculation we have perform following actions on State Bank of

Pakistan in to open PDF file of 12-Auction treasury rate.
www.sbp.org.pk → Economic Statistics → Auction T-rate → 12 month
The RFR is calculated by taking sum Auction Treasury Rate 12 month

value and divide that sum by their numbers. So RFR which will we used
in the Excel File is approximately 10.12%.
After getting the RFR, we have performed following steps: Page

i. ‘R-C’: We have assumed R-C values of Case–II by using
57
following formula:
Syntax:
=(Mean Value of Return Matrix-RFR Value)
Formula Used
=AH229-$F$296
A
ii. Z-Portfolio: The value of Z-Portfolio is obtain by using

following formula:
=mmult(minverse(All cells of Variance Covariance), All cells of R-C)
Formula Used
=MMULT(MINVERSE(C229:AF258),B264:B293)
iii. Portfolio 2: The values of portfolio-1 is obtained by using

following formula:
Syntax:
=(First Value of Z-Portfolio/Sum of Z-Portfolio)
Formula Used
=D299/$D$329
Case 2
When Constant is not zero 10.12%
Page
58
Z- Portfolio
R-C Portfolio 2
1 -9.58% 1.178706051 -0.011080846
2 -10.69% 19.0144915 -0.178752499
3 -8.96% -1.071611441 0.010074065
4 -9.81% -4.215095499 0.039625506
5 -8.82% -18.28765626 0.171919625
6 -9.06% -8.976363591 0.084385503

A
7 -9.82% -38.59636916 0.362838913

8 -11.05% 0.065743727 -0.000618047
9 -10.91% 14.68163641 -0.138019951
10 -10.04% -43.15232624 0.40566881
11 -10.51% -9.065090381 0.08521961
12 -10.89% -13.58528804 0.127713338
13 -7.44% -3.862337897 0.036309283
14 -11.64% -0.821207393 0.007720053
15 -10.57% -8.613748363 0.080976609
16 -9.66% -5.71928369 0.053766163
17 -9.60% -0.396349855 0.003726028
18 -8.55% -3.312682547 0.031142052
19 -11.43% 7.701977708 -0.072405184
20 -9.26% -3.92752466 0.036922094
21 -8.95% -13.9753513 0.131380267
22 -9.50% -5.830587439 0.054812514
23 -10.39% -7.974931823 0.074971187
140.50
24 % 0.167277122 -0.001572548
25 -7.26% 9.630284512 -0.090532919
26 -8.06% 11.37458412 -0.106930829
27 -8.95% 14.78847687 -0.139024343
28 -12.12% -2.115801627 0.019890347
29 -7.13% 1.344915295 -0.012643355
30 -9.03% 7.178223306 -0.067481444
Su
m -106.3732906 Sum 1
1.1. Transpose of Portfolios

The transpose of Portfolio is obtained by taking the transpose of
Portfolio-1 and Portfolio-2 by using following formula: Page
59
Syntax
=transpose(all cells of Portfolio-1 or Portfolio-2)
Formula Used
=TRANSPOSE(F264:F293)
A
=TRANSPOSE(F299:F328)
Window Display
1.2. Calculation of Markowitz Efficient Frontier

In this step we have perform following actions:
i. Mean: It is obtain by using following formula:
Syntax Page
=mmult(All values of Portfolio1, All Mean Values of Return Matrix)
60
=mmult(All values of Portfolio2, All Mean Values of Return Matrix)
Formula Used
=MMULT(C333:AF333,AH229:AH258)
=MMULT(C334:AF334,AH229:AH258)

A
ii. Variance: It is calculated by using following formula:
Syntax
=mmult(All values of Portfolio1, All Cells of Variance Covariance)
=mmult(All values of Portfolio1, All Cells of Variance Covariance)
Formula Used
=MMULT(C333:AF333,C229:AF258)
=MMULT(C334:AF334,C229:AF258)
iii. Standard Deviation: It is calculated by using following

formula:
Syntax
=sqrt(Variance of Portfolio-1)
Formula Used
=SQRT(C339)
=SQRT(D339)
iv. Covariance: It is calculated by using following formula:
Syntax Page
=mmul(mmult(All Values of Portfolio-1, All cells of Variance Covarince-
61
Formula Used
=SQRT(C339)
=SQRT(D339)

A
v. Correlation: It is calculated by using following formula:
Syntax
= (Covariance)/(S.D of Portfolio-1 * S.D of Portfolio-2)
Formula Used
=C341/(C340*D340)
Calculation of Markowitz
Efficient Frontier
Column1 Port 1 Port 2
-
Mean 0.121063209 0.000573754
Variance 0.001480087 0.000901051
S.D 0.038471904 0.030017508
-
Covariance 0.000181829
Correlatio
-
n 0.157450847 Page
62
1.1. Proportion of Portfolio
1.1.1. Mean: It is obtain by using following formula:
Syntax

A
=weight of 30% * mean of portfolio-1+ weight of 70% * mean of

portfolio-2
Formula Used
=F345*C338+(1-F345)*D338
1.1.2. Variance: Mean: It is obtain by using following formula:
Syntax
=Weight 30%^2* Variance of Portfolio-1+ (1-Weight 70%)^2*
Variance of Portfolio-2+ 2*Weight of 30%*Weight of 70%* S.D of
Porfolio-1* S.D of Portfolio-2*Correlation
Formula Used
=F345^2*C340^2+(1-F345)^2*D340^2+2*F345*(1-
F345)*C340*D340*C342
1.1.3. Standard Deviation: It is obtain by using following formula:
Syntax
=sqrt (Variance of Proportion of Portfolio-1)
Formula Used
=SQRT(C348)
Page
63
Proportion of Portfolio 1
30
Column1 w1= %
Mean 0.0359173349375644
Variance 0.000498355
S.Deviation 0.022323856

A
1.2. Graph of Markowitz Efficient Frontier

In order to generate the graph of Efficient Frontier, we need to do
some steps. First we have to enter the data in the pattern shown
below:
Select All Column of above table and go to Data Tab, click on the If
what analysis option, new window will be opened.
Page
64
In Column input cell select 30% and

click ok.and it will generate following
output:

A
Now select all S.D and Mean Values and then Click on Insert tap and
then on Scatter Diagram. The Makrowitz Efficient Frontier Graph will be
generated
1.3. CAPM & SML

Page
Now take the Transpose of Both Mean and Beta evaluated in the
65
Return Matrix Table and you will get following table:
Capital Asset Pricing Method

Mean Beta
1 0.005352262 -0.05088412

A
2 -0.005742316 1.187639907
3 0.011608712 1.471630678
4 0.003136563 0.382747406
5 0.013005836 0.886707592
6 0.01058747 0.125214826
7 0.003038129 0.47728917
8 -0.009265813 0.682583413
9 -0.007907301 1.090788104
1
0 0.000778274 0.514011494
1
1 -0.003894431 1.064482189
1
2 -0.007661773 0.949067355
1
3 0.026787113 0.251197344
1
4 -0.015196025 0.3870672
1
5 -0.004501066 0.798202591
1
6 0.004636667 0.845167977
1
7 0.005161166 0.377500299
1
8 0.015664065 0.380559397
1
9 -0.013143909 0.69603065
2
Page
0 0.008618054 1.037923955
66
2
1 0.01165909 0.234638529
2
2 0.006204868 0.119624986
2
3 -0.002733077 0.456319188
2 1.506218841 -0.62921211

A
4
2
5 0.028613586 1.335345445
2
6 0.020562559 1.333115005
2
7 0.011709819 1.316424959
2
8 -0.020022221 0.439606321
2
9 0.029925578 0.760185923
3
0 0.010935076 1.209718941
After obtaining this table, Click on the Home tap and then select the
excel option. After clicking the Excel Option you will obtain following
window:
Page
67
Select the Add-Ins and in the sub window, click on the Analysis
ToolPak and press enter.
A
Now Click on Data option and you will new option of Data Analysis.
Click on the Data Analysis Option and Data Analysis window will be
opened.
Page
68
In Data Analysis Window, Select the Regression and click OK. A new
Regression window will be appear.

A
In Regression Window, You will have to do following tasks. In Input Y-

Range, select all Mean Values and in X-Range, select all Beta Values
and checked all necessity options.
By clicking OK. Following Output will be executed on the Separate

Spreadsheet.
Page
69
SUMMARY OUTPUT
Regression Statistics

A
0.50082
Multiple R 2
0.25082
R Square 2
Adjusted R 0.22406
Square 6
Standard 0.24172
Error 4
Observations 30
ANOVA
Significa
Df SS MS F nce F
9.3743
Regression 1 0.547745 0.547745 15 0.004819
Residual 28 1.63605 0.05843
Total 29 2.183795
Coefficie Standard P- Lower Upper Lower Upper

nts Error t Stat value 95% 95% 95.0% 95.0%
0.24503 0.0032 0.4011 0.08892 0.40114
Intercept 5 0.07621 3.215257 76 0.088926 44 6 4
-
0.0048 0.0938
X Variable 1 -0.28349 0.092592 -3.06175 19 -0.47316 3 -0.47316 -0.09383
RESIDUAL OUTPUT PROBABILITY OUTPUT
Predicte Standard Percentil

Observation dY Residuals Residuals e Y
-
0.0200
1 0.25946 -0.25411 -1.06984 1.666667 2
-
2 -0.09165 0.08591 0.361698 5 0.0152
Page
-
0.0131
70
3 -0.17216 0.183771 0.773707 8.333333 4
-
0.13652 0.0092
4 9 -0.13339 -0.5616 11.66667 7
-
0.0079
5 -0.00634 0.019346 0.081451 15 1
-
0.20953 0.0076
6 7 -0.19895 -0.83761 18.33333 6
7 0.10972 -0.10669 -0.44918 21.66667 -

A
0.0057
7 4
0.05152 -
8 7 -0.06079 -0.25595 25 0.0045
-
0.0038
9 -0.0642 0.056288 0.236985 28.33333 9
-
0.09931 0.0027
10 6 -0.09854 -0.41486 31.66667 3
0.0007
11 -0.05674 0.052844 0.222482 35 78
0.0030
12 -0.02402 0.016357 0.068867 38.33333 38
0.17382 0.0031
13 2 -0.14703 -0.61904 41.66667 37
0.13530 0.0046
14 4 -0.1505 -0.63363 45 37
0.0051
15 0.01875 -0.02325 -0.09789 48.33333 61
0.00543 0.0053
16 6 -0.0008 -0.00336 51.66667 52
0.13801 0.0062
17 6 -0.13285 -0.55934 55 05
0.13714 0.0086
18 9 -0.12148 -0.51147 58.33333 18
0.04771 0.0105
19 5 -0.06086 -0.25623 61.66667 87
0.0109
20 -0.04921 0.057827 0.243463 65 35
0.17851 0.0116
21 6 -0.16686 -0.7025 68.33333 09
0.21112 0.0116
22 2 -0.20492 -0.86274 71.66667 59
0.11567 0.0117
23 2 -0.1184 -0.4985 75 1
0.42341 0.0130
24 2 1.082807 4.558814 78.33333 06
0.0156
25 -0.13353 0.16214 0.682637 81.66667 64
0.0205
Page
26 -0.13289 0.153456 0.646078 85 63
0.0267
71
27 -0.12816 0.139872 0.588886 88.33333 87
0.0286
28 0.12041 -0.14043 -0.59124 91.66667 14
0.02952 0.0299
29 8 0.000398 0.001676 95 26
1.5062
30 -0.09791 0.108847 0.458265 98.33333 19
GRAPH OUTPUT
A
From the above Graph, we have obtained the expected Return and
with the help of those expected return we are able to draw the
Indication Table. The Indication Table will help us in indicating the
actions we will take with regards these stocks.
Indication
Required
Table
Expected Differenc
Page
Stock Return Return e Decision Order
-
72
0.00535226 0.25945994 0.254107 Over
ATLH 2 2 68 Valued Sell It
- -
0.00574231 0.09165253 0.085910 Under
BAFL 6 3 217 Valued Buy It
NBP 0.01160871 - 0.183770 Under Buy It
2 0.17216183 545 Valued

A
3
-
MUR 0.00313656 0.13652858 0.133392 Over
EB 3 6 023 Valued Sell It
-
DAW 0.01300583 0.00634404 0.019349 Under
H 6 3 879 Valued Buy It
-
GWL 0.20953718 0.198949 Over
C 0.01058747 4 714 Valued Sell It
-
0.00303812 0.106228 Over
KOHE 9 0.1092669 771 Valued Sell It
- -
0.00926581 0.05152727 0.060793 Over
PCAL 3 8 091 Valued Sell It
-
0.00790730 0.056290 Under
PGF 1 -0.06419757 269 Valued Buy It
-
0.00077827 0.098537 Over
FFC 4 0.09931618 906 Valued Sell It
- -
0.00389443 0.05873822 0.054843 Under
AHSL 1 3 792 Valued Buy It
- -
0.00766177 0.02401896 0.016357 Under Page
73
PTCL 3 5 192 Valued Buy It
-
0.02678711 0.17382206 0.147034 Over
RMPL 3 4 951 Valued Sell It
- -
0.01519602 0.13530395 0.150499 Over
SEPL 5 7 982 Valued Sell It

A
- -
0.00450106 0.023251 Over
SNGP 6 0.01875089 956 Valued Sell It
-
0.00463666 0.00543574 0.000799 Over
PKGS 7 7 08 Valued Sell It
-
0.00516116 0.13801610 0.132854 Over
SHFA 6 3 937 Valued Sell It
-
0.01566406 0.13774887 0.122084 Over
MTL 5 1 806 Valued Sell It
- -
0.01314390 0.04771508 0.060858 Over
INIL 9 5 994 Valued Sell It
0.00861805 0.057819 Under
PNSC 4 -0.04920159 644 Valued Buy It
-
0.17851636 0.166857 Over
EFUL 0.01165909 7 277 Valued Sell It
-
GRAY 0.00620486 0.21112186 0.204916 Over
S 8 2 994 Valued Sell It
- -
0.00273307 0.11567152 0.118404 Over
GSK 7 6 603 Valued Sell It
1.50621884 1.082802 Under Page
74
TRG 1 0.42341683 011 Valued Buy It
0.02861358 13325969 Under
AICL 6 -13325969 .03 Valued Buy It
-
0.02056255 0.13289365 0.153456 Under
ATRL 9 6 215 Valued Buy It
NML 0.01170981 - 0.139871 Under Buy It

A
0.12816215
9 1 97 Valued
- -
PIAC 0.02002222 0.12040950 0.140431 Over
A 1 7 728 Valued Sell It
0.02992557 0.02952753 0.000398 Under
PAKT 8 6 042 Valued Buy It
-
0.01093507 0.09791177 0.108846 Under
PCAL 6 7 853 Valued Buy It
Page
75
2.References
A
www.brecorder.com
www.businessweek.com
www.kse.com.pk
www.sbp.org.pk
Page
76
7. Appendices

A
WAY (12-
Auction No. Auction Date N
month)
180 6-Jul-05 8.4561% 1
181 20-Jul-05 8.6884% 2
182 3-Aug-05 8.6986% 3
183 17-Aug-05 8.7865% 4
184 31-Aug-05 8.7830% 5
185 14-Sep-05 8.7907% 6
186 28-Sep-05 8.7896% 7
187 12-Oct-05 8.7907% 8
188 26-Oct-05 8.7687% 9
189 8-Nov-05 8.7674% 10
190 23-Nov-05 8.7666% 11
191 7-Dec-05 8.7874% 12
192 21-Dec-05 8.7648% 13
193 4-Jan-06 8.7768% 14
194 18-Jan-06 8.7523% 15
195 1-Feb-06 8.7843% 16
196 15-Feb-06 8.7907% 17
197 1-Mar-06 8.7808% 18
198 15-Mar-06 8.7832% 19
199 29-Mar-06 8.7897% 20
200 12-Apr-06 8.7878% 21
201 26-Apr-06 8.7907% 22
202 10-May-06 8.7907% 23
203 24-May-06 8.7907% 24
204 7-Jun-06 8.7863% 25
205 21-Jun-06 8.7907% 26
206 5-Jul-06 8.7903% 27
207 19-Jul-06 8.7865% 28
208 2-Aug-06 9.0046% 29
209 16-Aug-06 9.0046% 30
210 30-Aug-06 9.0046% 31
211 13-Sep-06 9.0046% 32
212 27-Sep-06 9.0046% 33
213 11-Oct-06 9.0046% 34 Page
214 21-Oct-06 9.0046% 35
77
215 8-Nov-06 9.0020% 36
216 22-Nov-06 9.0046% 37
217 6-Dec-06 9.0046% 38
218 20-Dec-06 9.0046% 39
219 30-Dec-06 9.0046% 40
220 17-Jan-07 9.0046% 41
221 31-Jan-07 9.0043% 42
222 14-Feb-07 9.0045% 43
223 28-Feb-07 9.0046% 44

A
224 14-Mar-07 9.0031% 45

225 28-Mar-07 9.0156% 46
226 11-Apr-07 9.0538% 47
227 25-Apr-07 9.0784% 48
228 9-May-07 9.0910% 49
229 23-May-07 9.1021% 50
230 7-Jun-07 9.1243% 51
231 21-Jun-07 9.1597% 52
232 4-Jul-07 9.1597% 53
233 18-Jul-07 9.1593% 54
234 1-Aug-07 9.3727% 55
235 15-Aug-07 9.3975% 56
236 29-Aug-07 9.3990% 57
237 12-Sep-07 9.3990% 58
238 26-Sep-07 9.3990% 59
239 10-Oct-07 9.3990% 60
240 24-Oct-07 9.3990% 61
241 7-Nov-07 9.3932% 62
242 21-Nov-07 9.3961% 63
243 5-Dec-07 9.4058% 64
244 19-Dec-07 9.4429% 65
245 2-Jan-08 9.4371% 66
246 16-Jan-08 9.4493% 67
248 13-Feb-08 9.8692% 68
249 27-Feb-08 9.9908% 69
250 12-Mar-08 10.0777% 70
251 26-Mar-08 10.1235% 71
252 9-Apr-08 10.1251% 72
253 23-Apr-08 10.1357% 73
254 7-May-08 10.1715% 74
255 21-May-08 10.3246% 75
256 4-Jun-08 11.3931% 76
257 18-Jun-08 11.6881% 77
258 2-Jul-08 11.7841% 78
259 16-Jul-08 11.8294% 79
266 22-Oct-08 12.7873% 80 Page
271 31-Dec-08 14.2529% 81
78
272 14-Jan-09 14.2609% 82
273 28-Jan-09 14.1589% 83
274 11-Feb-09 13.8408% 84
275 25-Feb-09 12.9881% 85
276 11-Mar-09 11.7781% 86
277 25-Mar-09 11.8475% 87
278 8-Apr-09 12.9687% 88
279 22-Apr-09 13.1351% 89
280 6-May-09 13.2294% 90

A
281 20-May-09 13.2648% 91

282 3-Jun-09 13.2297% 92
283 17-Jun-09 12.0882% 93
284 15-Jul-09 11.4703% 94
285 29-Jul-09 11.7514% 95
286 12-Aug-09 12.1620% 96
287 26-Aug-09 12.4204% 97
288 9-Sep-09 12.4628% 98
289 25-Sep-09 12.4751% 99
290 7-Oct-09 12.5804% 100
291 21-Oct-09 12.6091% 101
292 4-Nov-09 12.5202% 102
293 18-Nov-09 12.1916% 103
294 2-Dec-09 12.0903% 104
295 16-Dec-09 12.1913% 105
296 30-Dec-09 12.0905% 106
10.1234%
Page
79

Interpretation 2003

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A

1.1. Karachi Stock Exchange

• Incorporated on March 10, 1949

A stock exchange, share market or bourse is a corporation or

A stock exchange, (formerly a securities exchange) is a

A stock exchange is often the most important component of a stock

I Investment Analysis & Portfolio Management GIFT University

There is usually no compulsion to issue stock via the stock exchange

To be a leading financial institution, offering efficient, fair and

To strive and provide quality and value-added services to the capital

To provide state of the art technology and automated trading

To protect and safeguard the interest of all its stakeholders, i.e.

I Investment Analysis & Portfolio Management GIFT University

1.1.4.KSE POSITIONED TO BE A HUB OF CAPITAL FORMATION

• South Asian Federation of Exchanges (SAFE)

• Vice Chairmanship of the South Asian Federation of Exchanges

• Affiliate Member of the World Federation of Exchanges (WFE)

• Affiliate Member of International Organization of Securities

• Agreements with other Exchanges Dubai Financial Markets Abu

1.1.1.THE FUTURE SUCCESS WILL DEPEND ON THE QUALITY

• A spirit of youthful energy, high intellect and superior skills

• Our workforce consists of a combination of youth and experience

• Candidates are selected based on their individual energy, quick

compatibility with KSE culture.

• The key to our long-term success is the creative genius of our

• Our employees are exposed to an organizational commitment to

I Investment Analysis & Portfolio Management GIFT University

• Our people get involved in various initiatives ranging from

• On a regular basis, some of our best performers are selected for

• Promoting a performance driven culture where ‘high performers’

1.1.1. KSE PLAY A KEY ROLE IN PAKISTAN’S ECONOMY

• Listed Companies contribute over 10% of total revenue collected

• Our investors pay 10% tax on dividends.

• Brokers and Members

I Investment Analysis & Portfolio Management GIFT University

The Information Technology Group forms the Core of the

• Development, implementation and monitoring of state-of-the-art

• Disaster Recovery Management and Business Continuity

• Software Development, Testing and Training.

• Customer Services Support.

• Caters to member’s complaints regarding computer network and

• Administration and Maintenance of servers and operating

• Partnerships with Microsoft, Oracle and Unisys for I.T.

1.1. MARKET INDICES

KSE 100 Index

I Investment Analysis & Portfolio Management GIFT University

• Most recognized index of the KSE

• Representation from all sectors of the KSE and includes the

• Represents over 85% of the market capitalization of the

The primary objective of the KSE100 index is to have a benchmark by

1.2.2. BRIEF ABOUT KSE-100 INDEX

I Investment Analysis & Portfolio Management GIFT University

1.2.3. LIST OF SECTORS

1. Open-end Mutual Funds 2. Close-end Mutual Funds

1.2.4. STOCK SELECTION RULES

The selection criteria for stock inclusion in the recomposed KSE100

I Investment Analysis & Portfolio Management GIFT University

Rule # 1 Largest market capitalization in each of the 34 Karachi Stock

Rule # 3 Company which is on the Defaulters’ Counter and/or its

The sectors chosen by us are mentioned below:

• Automobile and Parts

I Investment Analysis & Portfolio Management GIFT University

• Construction and Materials