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Equity market of Pakistan
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No country can think of prosperity without developing
equity market
By Abdul Rahman Batada
July 02 - 08 , 2001
A sound and efficient Capital Market is a backbone of
a country. Capital Markets play a crucial role in mobilizing domestic
and foreign resources, and channeling them to the most productive medium
and long term uses. Efficient allocation of resources received through
this medium is easier.
There are three Stock Exchanges in Pakistan, which
form an equity market. Non-Bank Financial Institutions in the country
dominate over intermediate financial system in the country. Three Stock
Exchanges of the country are based in Karachi, Lahere and Islamabad. Out
of these three Exchanges Karachi Stock Exchange dominate the other
exchanges in terms of number of listed companies, turn over rate and
quantum of Capital raised through floatation of new issues. Securities
& Exchange Commission of Pakistan (SECP) is playing an active role
in safeguarding the interest of small investors.
Capital Market in the country has experienced many
ups & down in the past, due to frequent changes in the government
accompanied with simultaneous changes in policy relating to Capital
Market. The equity market of the country had to survive in an atmosphere
of absolute uncertainty. It had become very common to change the
policies of the previous government by the sitting government. Sometime
it affected the inflow of foreign resources in the equity market with
the lapse of time.
Capital Markets in early sixties and seventies were
on its peak as a great number of companies of different sectors
floated/offered their shares to public for subscription which were in
general heavily oversubscribed. In fact general public was then more
inclined to invest their funds in equity market. Small investors then
used to invest their funds in equity market as the return offered in the
shape of Dividend on such shares was sufficient to satisfy them.
Presently the situation is quite reverse. The number of companies
floating their shares has declined tremendously as also the shares
offered to the public remain unsubscribed or are not fully subscribed.
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Year wise Position of Capital raised throughNew common stock &
TFC at Karachi Stock Exchange
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(Rs. In Million)
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Year |
Shares No.of Co's |
Shares offered |
Subscribed |
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1993-94 |
57 |
3591.1 |
43,482.2 |
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1994-95 |
63 |
18439.3 |
35,999.3 |
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1995-96 |
41 |
4620.6 |
10,913.0 |
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1996-97 |
8 |
2015.0 |
555.0 |
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1997-98 |
3 |
449.6 |
299.6 |
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1998-99 |
2 |
950.0 |
1,147.7 |
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1999-2000 |
5 |
865 |
1,042.2 |
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Foreign Investment (Rs. In Billion)
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| Year |
1997 |
1998 |
1999
2000 |
| Inflow |
8.4
31.1 |
8.9 |
7.4 |
| Outflow |
8.6
27.8 |
10.0 |
8.6 |
| Net
inflow |
-0.2
3.3 |
-1.1 |
-1.1 |
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Source SBP Annual Reports 1998 to 2000
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No. Of listed companies with Karachi Stock ExchangeAs on 30th June
2000
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| Year |
90-91 |
91-92 |
92-93 |
93-94 |
94-95 |
96-97 |
97-98 |
98-99 |
99-00 |
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497 |
596 |
652 |
683 |
746 |
782 |
779 |
769 |
762 |
Sources SBP Annual Reports 1998-2000
The downfall of the Stock Market is mainly
attributable to uncertainty prevailing in the country, for the last ten
to fifteen years. The companies belonging to different sectors of the
economy did not achieve the desired results as such they failed to
declare any dividends on their scrips. In addition to above country's
Stock Market is driven by speculative forces as such Stock prices
fluctuate on rumors without any cogent reasons. The violent fluctuations
in Stock Prices has driven the small investors into side line. This
ultimately affected the shares prices of such companies in the Stock
Exchange.
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Profile of stock exchanges in Pakistan (Paid up capital in billion
rupees)
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Exchanges |
Year
1995-96 |
Year
1996-97 |
Year
1997-98 |
Year
1998-99 |
Year
1999-00 |
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K.S.E |
145.0 |
206.7 |
211.2 |
215.0 |
229.3 |
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L.S.E |
119.4 |
184.7 |
186.0 |
186.9 |
207.7 |
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Islamabad
Stock
Exchange |
84.1 |
92.4 |
149.4 |
150.7 |
150.7 |
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(Source SBP Annual Reports 1995-2000)
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No country can think of prosperity without developing
equity market. It is a signal to the authorities to take appropriate
measures to save the economy before it is too late. It will be suicidal
to allow running the equity market at the present pace and pattern for
indefinite period. It is necessary to regulate the companies to declare
dividends whenever they earn profits so as to make equity market
attractive to the small investors. Similarly policies are to be framed
which are necessary for the survival of companies which are running at
break even point level.
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