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Equity market of Pakistan

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.

Year wise Position of Capital raised throughNew common stock & TFC at Karachi Stock Exchange

(Rs. In Million)

Year

Shares No.of Co's

Shares offered

Subscribed

1993-94

57

3591.1

43,482.2

1994-95

63

18439.3

35,999.3

1995-96

41

4620.6

10,913.0

1996-97

8

2015.0

555.0

1997-98

3

449.6

299.6

1998-99

2

950.0

1,147.7

1999-2000

5

865

1,042.2

Foreign Investment (Rs. In Billion)

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
Source SBP Annual Reports 1998 to 2000

No. Of listed companies with Karachi Stock ExchangeAs on 30th June 2000

Year 90-91 91-92 92-93 93-94 94-95 96-97 97-98 98-99 99-00
  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.

Profile of stock exchanges in Pakistan (Paid up capital in billion rupees)

Exchanges

Year
1995-96

Year
1996-97

Year
1997-98

Year
1998-99

Year
1999-00

K.S.E

145.0

206.7

211.2

215.0

229.3

L.S.E

119.4

184.7

186.0

186.9

207.7

Islamabad
Stock
Exchange

84.1

92.4

149.4

150.7

150.7

(Source SBP Annual Reports 1995-2000)

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.