Feb 09 - 15, 2009

A cutting edge financial system is the mirror of a progressive economy. Stock markets are the basic components of a strong financial system in developed and developing countries. A comprehensive model of financial system is not only conducive to the country's financial stability but also plays a vital role in allocation of resources to different sectors of an economy.

Proper allocation of resources leads an economy towards balanced growth, fruits of which equally are shared by poor and rich. As stock markets in the world have gained much importance, every stakeholder regularly analyzes the happening of the stock market. So, stock market is the yardstick of an economic development.

Until 1995's, the stock market of Pakistan has limited and specific role regarding the promotion of economic activities. Substantial improvement was witnessed due to government reforms in the stock market which had very positive impact on our economy. The real driving force of stable macroeconomic policies, visible economic growth, stability in exchange rate and diversification of economy was Securities and Exchange Commission of Pakistan (SECP).

Due to reforms, the Karachi stock exchange (KSE) started showing good results. Other than KSE, the Lahore stock exchange and Islamabad stock exchange followed the KSE results. At the end of fiscal year, 2003, the KSE index was 3403 level and Market capitalization was RS.746 billion which increased to RS.2766 billion at the end of year 2006.

Due to this, healthy business environment, well established multinational companies and foreign and local investors started investing in Pakistan.

Now Pakistan has become the hub of financial activities and the government has taken necessary steps to ensure economic development.

SECTOR 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Agriculture 1.0 0.6 1.5 1.4 0.8 0.3
Industry 1.0 3.8 3.1 1.1 2.1 1.2
Services 2.7 3.1 4.4 3.3 3.9 4.2
Real GDP 4.7 7.5 9.0 5.8 6.8 5.8
Source: Federal Bureau of Statistics

Table A indicates that Pakistani economy is showing impressive growth and stock market plays very important role in this regard. The fiscal year 2004-05 saw the record growth in the history of Pakistan. Table B indicates the total number of listed companies and total turnover of shares at Karachi stock exchange, Lahore stock exchange and Islamabad stock exchange.

1.No of listed companies
2.Total turnover of shares

(Rs: billion)

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
747 29.2 712 29.1 702 53.1 668 97.1
659 88.3 658 104.7 658 68.8 652 56.9
1.No of listed companies
2.Total turnover of shares
(Rs: billion)
614 7.8 581 18.3 561 28.2 647 19.9
524 17.5 518 15 520 8.3 514 5.4
1.No of listed companies
2.Total turnover of shares
(Rs: billion)
281 1.4 267 2.7 260 2.1 251 1.4
232 0.7 240 0.4 246 0.3 247 0.9
Source: Economic Survey of Pakistan

  (RS: BILLION) ($: billion)
30-06-2003 3403 746 13
30-06-2004 5279 1403 24
30-06-2005 7450 2037 34
30-06-2006 9989 2766 47
30-06-2007 13773 4019 66
18-04-2008 15676 4791 75
30-06-2008 12289 3778 55
04-02-2009 5384 1703 22
Source: KSE

Pakistan's equity market has performed comparatively better in comparison to its regional counterparts. During 2007-08, the KSE 100 index share index gained landmark achievement of 15,676 points (See Table C) with total market capitalization of RS 4791 billion. But some economists say this unprecedented rise was more speculative than the actual indicator of market scenario. The remarkable GDP growths, better fiscal indicators like tax collection, high industrial production were the key elements behind this stock market upsurge.

As for the role of stock market is concerned regarding investment, the total investment has increased from 16.9 percent of GDP in 2002-03 to 21.6 percent of GDP in 2007-08 showing an increase of 5 percent of GDP in last five years. Fixed investment grew by 3.4 percent in real terms and 12.5 percent in nominal terms. Overall foreign investment during the first ten months (July-April) of the current fiscal year has declined by 32 percent and stored at 3.6 billion as against 5.3 billion in the comparable period of last year, mainly because of the fact that the political economy suffered many problems which still continues.


Unstable political situation in the country

Devastating energy crisis and supply side mismanagement of consumer necessities

Law and order situation in NWFP and FATA

Pak - India tension over Mumbai attacks

Governance issues in stock market

Budget deficit due to poor policies of last government

Discouragement of investment in the country by the issuance of white paper by the former finance minister Ishaq Dar

Consecutive closing of 110 days of stock market

Devaluation of currency up to Rs.30

Persistent rise in inflation rate in the economy


National stock market should be likened to India's.

Focus should be given for the development of industry and especially for foreign exchange contributor such as textile sector which is now in deep crisis.

No bailout package for stock market because by this, economic and stock market crisis will further intensify.

Brokers must realize their part of responsibility because Pakistan does not have much vigor to withstand crisis.

Discount rate should be reduced.

Policies must be formulated by taking investors in confidence.

Arrangements can be made for the collectively functioning of KSE, LSE and ISE if needed.


SECP initiatives of capital market had visible impact on the financial sector of Pakistan. However, further strong actions are needed to overcome these crises and to sustain the economic growth. Pakistan, being developing country, needs huge investment in all sectors of economy. It is need of the hour to spend more funds on building human capital instead of cutting down the development expenditure. Unless, government restores the confidence of local and foreign investors, revival of stock market is impossible. Pakistan has tremendous opportunities that must be pursued. To sustain market confidence government must adhere to its prudent macroeconomic policies, further deepen and diversify financial markets which attract maximum capital flows and develop a well balanced and vibrant financial sector. Financial market development in Pakistan has and will remain primary driver of economic activity. There are promising prospects and with various stakeholders' efforts the stock market has achieved many milestones but still if we compare ourselves to the region we are lagging behind.