The Performance of Karachi Stock Exchang

Journal of Social Sciences & Humanities
University of Karachi.49(2) 12-26
The Performance of Karachi Stock Exchange since 1990s: A Review

Khalid Mustafa Ph.D
Assistant Professor
Department of Economics
University of Karachi
E-mail: khalidku2009@yahoo.com
khalidm@uok.edu.pk
khalidku2009@gmail.com
Abstract
The aim of this study is to investigate the performance of Karachi stock exchange (KSE) since 1990.
Although three stock exchanges are operating in Pakistan but Karachi stock exchange is a true and active
stock exchange covering 75 percent of trading activity. That is why this paper focuses on Karachi stock
exchange. Before 1990 the Karachi stock exchange (KSE) was narrow and unable to cater the long-term
capital needs of the economy. After 1990 the government took various measures to activate the role of
stock market in economic development. The review indicates that the Karachi stock exchange got
momentum during 1960s and made significant increase in listed companies and market capitalization.
However, this momentum could not be maintained during 1970s. The reasons were separation of East
Pakistan and nationalization policy. As a result sixty companies were delisted and eighteen companies were
nationalized. During 1980s denationalization policy restored however, the KSE could not get momentum
before 1990. The 1990 provided a new life to Karachi stock exchange. The reasons were KSE was opened
for foreign investors and financial reforms introduced. As a consequence the depth and size of market
significantly increased. However, this achievement could not continue in later years. To improve the
economic performance of KSE, the management of KSE and CLA (corporate law authority) later SECP
(security and exchange commission of Pakistan) has taken many steps. Due to unfavorable economic
situation i.e. high inflation, unemployment and widening budget deficit these steps could not improve the
performance of Karachi stock exchange. Moreover, the Karachi stock exchange is driven by speculative
sentiments. The overriding sentiments of speculative and insider trading have been ruling the market and
have often resulted in price volatility as well as price manipulation. The markets response to fundamental
investment-oriented events has been dismal and less significance. It is suggested that the Karachi stock
exchange should improve the quantity, quality and creditability of information and companies discloses
the information to investing public. The information may address the diversification, investors
participation, and minimization of unanticipated practices. Such policy may protect the small investors
interest that is always the issue for developing and emerging stock exchanges.

The Performance of Karachi Stock Exchange since 1990s: A Review

Khalid Mustafa
1 Introduction
Stock exchange play very important role in economic development. Inefficiency of stock exchange is one
of the most serious limiting factors in underdeveloped countries. In the view of many experts 1 stock
exchange occupies the central and strategic position in the process of economic development of a country.
Financing for development projects and creating proper incentives for economic enterprise cannot take
place without well-organized stock exchange. Without having fully developed stock exchange, a country
will not be able to increase the availability of equity funding and move towards more balanced financial
structures2.
In Pakistan, like many other developing countries, the stock market could not play its crucial role in
economic development. Before 19903, the Karachi stock exchange (KSE) was narrow and unable to cater to
the long-term capital needs of the economy. Commercial banks and development financial institutions
provided the long-term capital needs. The stock market was no more a side show, a hunting ground for
the rich whose fortunes were made or lost. Due to these reasons the efficient working of stock market was a
big question mark. The KSE has been characterized 4 as speculative market where preferential treatments
are given to members of stock markets for their role as market makers 5; time span of trade settlements 6 was
large. From regulatory side, loose enforcement of rules and regulation 7 and foreign investors were not
allowed to invest in KSE without prior approval of the government. Moreover, restriction on outflow and
inflow of foreign exchange movements8; liquidity constraints, narrow trading base and limited use of
Robinson, Joan (1952). "The Generalization of the General Theory," in The Rate of Interest and Other
Essays, London: Macmillan. Others are Lucas (1988) and King and Levine (1993), Asli Demirg-Kunt
and Ross Levine, (1996), and Rania A. Al-Mashat1 (2003).
2
Rania A. Al-Mashat1 (2003) Financial Sector Development and Economic Growth in Egypt 1960-1999.
Draft
3
Mustafa, K (2008) The Role of Information on Stock Market PhD dissertation submitted to department
of Economics, University of Karachi
4
Ali, S. S. (1997). Prices and Trading Volume in Pakistan Stock Markets, Journal of Economic
Cooperation Among Islamic Countries, 18, 3, 115-137.
5
Members do not care the margin requirements in their mutual trade as a result a considerable part of trade
lies between member themselves. It does not necessarily represent the true small investors. Moreover,
members involve in speculative trade between themselves and take command on stock positions
6
At that time it took time seven to fourteen days for settlements of shares and transfers the registration of
share from seller to buyers. As a result badla financing and other informal trade begin which ultimately
increase the uncertainty in stock market
7
This rises the problems of insider trading through unchecked marginal requirements. These marginal
requirements are neither regulated nor rigorously enforced. As a result the trade in stock market takes place
with too much leverage, which can easily force a trader into bankruptcy if his expectations about the future
prices are not materialized
8
This policy kept the foreign investors away from Pakistani stock markets.

technology9 are constrained to develop the market. As a result information play limited role on stock
market.
Karachi stock exchange (KSE) has been termed as one of the best performing emerging market after 199010.
However, like many other emerging markets KSE is considered as shallow market 11, plays limited role to raise
the funds12 and a fairly volatile13 market. The market has experienced the booms and bursts of comparatively
shorter time duration, which may due to poor information, weak institutional supports and lack of compliances
of regulating authority requirement.
2 Historical Trends
There was the existence of stock market in Lahore before the partition. This stock exchange was
established in 1934. During the Second World War the income of Lahores business community increased
which led to set up another three stock exchanges named Punjab shares and stockbrokers associations
limited, the Lahore central exchange limited and the All India stock exchange limited. However, these
exchanges suffered badly in the depression after Second World War. Two stock exchanges were closed
down and one stock exchange merged in Delhi stock exchange14.
After independence Karachi became the main hub of business activity. The reasons were the main port and
influx of immigrants from all over the subcontinents. Some of them actively involved in Bombay Stock
Exchange and they setup a group of entrepreneurs who rented a room to trade in shares and securities. The
Karachi Stock Exchange (KSE) was established soon after independence in 1947 15. At that time 90
members were enrolled as broker and hardly half a dozen of them were active. Initially only 5 companies
were listed with a paid up capital of Rs. 37 million.
From this modest beginning the Karachi Stock Exchange by the end of December 2009, had become a key
institution in the financial sector of Pakistan, and today has a membership strength of 200 with almost 165
active members and 17 corporate members of whom 9 are publicly equities companies. Securities listed on
stock exchange are 665 in which ordinary listed companies are 651, preference shares are one and debt
9
These constraints limited the number of listed companies and their market capitalization.
Hussain, F and Muhammad Qasim (1997) The Pakistani Equity Market in 50 Years: A Review, The
Pakistan Development Review 36:4 pp 863-872
11
The market capitalization to GDP ratio (44.23%) is less than turns over to GDP ratio (60%) in 2007. For
developed market the market capitalization ratio to GDP is large and turnover is small. It implies that the size of the
10
market is less than the size of the economy in Pakistan. Pakistan stock market in contrast to developed market like, as
US capital where market capitalization to GDP ratio is 92 percent turnover is 65 percent.
12
. In 2007 eighteen new companies were listed in KSE which raised Rs. 7.9 billion.
During 2007, standard deviation of KSE-100 was 1199.5
14
http://www.appuonline.com/appu/investment/about.html
15
Karachi Stock Exchange came into existence on 18 th September 1947. It was later converted into a
registered company limited by guarantee on 10th March, 1949. (KSE diary 2007)
13

securities (TFC) are 13. These companies have a listed capital of Rs 782 billion (US$ 94937 million) with a
market capitalization of Rs 2143 billion (US$ 2515.53 million), which is 17.5 percent of total GDP. It
shows KSE has a small market size. An average daily turnover of approximate 115 million shares with
average daily trade value Rs. 28335.78 million (US$ 352.97 million), which is 21.917 percent of the market
capitalization 16(see table 1).
At the time of independence the condition of Pakistan economy was poor. Although at that time there were
political instability, less industrial base and small entrepreneur class present but economy grew
with healthy sign because of the healthy cooperation between private sector and public sector. As
a result the performance of Karachi stock exchange improved i.e. listing of new companies
increased from 13 to 81, paid up capital increased up to Rs. one billion ($267.2m) and market
capitalization being Rs 1.9billion ($511.6m).
The economic progress continued in 1960s especially in the first half of this decade. In second half of this
decade there were adverse effect on Pakistan economy due to war between India and Pakistan and socio
political unrest. However overall economy had showed positive sign during this decade, which also had
influenced on Karachi stock exchange. The new listed companies increased up to 318, and market
capitalization increased up to Rs 4.25 billion ($892.5m). Annual turn over also increased sharply during
second half of this decade i.e. 15.4 million shares changed the hands. However, major emphasis was given
on debt financing rather than equity financing. Three steps had been taken in this respect. First the Trading
Bonus Voucher Scheme was introduced in the equity market. Second, NIT and ICP were established in
1963 and 1966 respectively in order to provide facility for small investors to participate in the market.
Third, regulating legislation such as the security and exchange ordinance in 1969 and security and
exchange rule in 1971 promulgated to protect the right of share holders and to regulate the activities of the
members besides defining the reporting requirement for companies listed on the exchange.
The 70s decade was the worst decade in Pakistan economy. A war between India and Pakistan as a result
the separation of East Pakistan and government introduced nationalization policy which had adverse effect
on Pakistan economy as well as on Pakistan equity market. Sixty companies got delisted due to separation
of East Pakistan and 18 companies were nationalized. 70 percent of the economy was under the control of
the government and 30 percent was under private sector. However, private sector was fully dominated by
public sector that is why by the end of 70s the listed companies were 314 and market capitalization was
Rs. 6.36 billion ($ 642.4 m). The annual turnover was 25.8 million shares which was only 67 percent higher
than in 1970.
16
Emerging Stock Market factbook 2007.

The 1980s started with goods expectation because fear of nationalization was abated and flows of
remittances of Pakistani workers from abroad. No serious policies were taken until the half of the decade.
In 1985-86 significant policies were taken including (i) exemption of income tax from dividend (ii)
regularization of monetary system through the special bond issue (iii) issue of foreign exchange bearer
certificate to encourage remittances through regular banking channels (iv) issue of bearer bonds for general
public (v) a program to gradually permit the entry of the private sector in financial system investment banks
and leasing (vi) a dis-investment program of government held share. These steps had positive impact on
investment climate and restored business climate that had improved stock market activity. As a
consequences the number of listed companies increased from 314 to 438 and market capitalization
increased eight times from Rs. 6.36 billions to Rs.52.79 billion and annual turn over also rose up to Rs.
252.9 million.
The 1990s started with uncertain situation. The reasons were (i) highly tension with India (ii) change of the
government and uncertainty about election (iii) gulf crisis which had adverse impact on balance of
payments. (iv) the suspension of US aid on political ground as well as stoppage of the disbursement of IMF
loan for failure to meet economic targets. These unfavorable reasons could not affect the market sentiments
largely due to privatization move and measure taken to liberalize the economy. As a result the number of
listed companies increases from 438 to 487 and market capitalization from Rs.52.79 billion to Rs. 64.8
billion.
3 Performance of Karachi Stock Market After 1990
To play a required role in mobilization of capital in the economy, many steps were taken. These are to open
the market to foreign investors as well as to attract the local players, the institutional development and
financial reforms as a result more disclosure of information through frequent issue of quarterly and annual
report, announcement of dividends, annual general meeting and issue the daily quotation.
Moreover, to protect investors interest from excessive volatility in prices, the Karachi stock exchange has
taken many measures. These are (i) introduction of Karachi Automated Transaction Systems (KATS) for up
grade test to handle excessive trading volume; (ii) Central Depository System (CDS) and redesign this
system into several Virtual Local Area Networks (VLAN) termed as inter-VLAN communication which
help to deal more than one million per day; and (iii) National Clearing System to handle clearing and
settlement of three exchanges of the country under one roof. These measures have eliminated the chances
of forgery frauds, delay in transfer and thus reduce the volatility in stock prices. In addition to that, the
exchange provides information on real time basis to the investors through the Internet. Now investors all
over the world can access and down load latest trading information from the web site. Security and
Exchange Commission of Pakistan (SECP) provide guidelines to reinforce good corporate governance

whose aim is enhancing investor confidence by increasing transparency in the business practices of listed
companies. In order to minimize the organizational weakness and to improve the financial soundness
government privatized the financial and non-financial institution. They generated the funds from stock
markets that ultimately improved the performance of stock market. Further, this information are also linked
and influenced by political and economic information and investors could relate it towards the trading
activity of the market.
In 1991, the new government took steps which were (i) the opening of the market to international investors;
(ii) removal of constraints to repatriation on investment process, gains and dividends; (iii) deregulation of
economy and allowing commercial banks in private sector; (iv) liberalization of foreign restrictions and
allows to Pakistanis to open foreign currency accounts. Due to these steps stock market reacted positively
and by the end of 1991, listing companies rose up to 542 while 61 new companies are listed in stock
market. Market capitalization increased more than double i.e. Rs. 189.518 billion ($7.3 billion). Similarly,
turnover and traded value increased twice i.e. 361 million. These movements in stock markets caused the
inflow of the foreign capital through common wealth Equity Fund, the Pakistan Fund, and Pakistan growth
fund. As a result, Pakistan share market was given 2nd rank among five emerging markets in the world in
terms of returns obtained by investors.
The success of stock market continued in 1992 due to government favorable policy, which attracted the
foreign investors. As a result, listed companies increased up to 628 in which 86 companies are new and
market capitalization reached to Rs. 204.723 billion ($8.025 billion).
The 1993 experienced a series of political changes: Mr. Nawaz Sharifs government dissolved and
caretaker government was formed. However, by a decision of court Mr. Sharif government restored in May
but again had to remove in July. It caused the formation of new caretaker government. The general election
was held and as a result Ms Bhutto government came into power. The investors gained confidence after
settlement of political crisis and once again the market became bullish trend in the last quarter of 1993. As
a result listed companies increased up to 653 including 38 new companies, and market capitalization to Rs.
370.247 billion ($12.025 billion).
In the first quarter of 1994, the bullish trend was observed in KSE but in later months up to the end of the
year, the market did not maintain this momentum. This was due to a significant reduction in the annual
production of cotton and political tension between government and opposition parties. Despite the bearish
trend in the market, 72 new companies were listed during this year. By the end of 1994 the listed companies
rose up to 724 and market capitalization increased up to Rs 400.554 billion ($12.263 billion).

1995 was not a good year for Pakistans equity market. Due to political crisis, discouraging economic
outlook, and outbreak of violence in Karachi, foreign investors, local institutions, and domestic investors
did not take interest in investment in Pakistan equity market. The situation further deteriorated by the
Mexican financial crises that discouraged the foreign investors in investing in emerging markets. KSE-100
index decreased 26.9% in terms of local currency and 33.7% in terms of Dollar. 41 new companies were
listed during this year. Turnover was also sluggish and was Rs. 272.397 billion ($266.2m) while total
market capitalization dropped by 24.3% i.e. Rs. 327.781 billion.
There was hope for better performance of Pakistan equity market in early 1996. But there was political
unrest and lack of positive economic news in the market. In second half of this year Ms. Bhutto
government had dismissed which supposed to eliminate political unrest. Moreover, despite the capital
market package by caretaker government, the KSE could not gain investors confidence. KSE-100 index
fell by 9.6% in domestic currency and 19.3% in Dollar terms. However, turnover and market capitalization
increased by 6732.65m shares worth $6.1billion and 14.6% or Rs 471.665 billion ($12.37 billion)
respectively.
In the beginning of 1997, new government came into power, which had positive effect on Pakistan equity
market. The main reason was the fact that the said government had introduced a few economic
liberalization measures during its first tenure. In order to remove bearish trend from KSE, the new
government had taken significant policies in May 1997. These measures were (i) extension of capital gain
exemption for another three years to up 2001; (ii) exemption of tax from bonus shares; (iii) removal of tax
on dividends payout for all mutual funds; iv) exemption of tax on foreigners from investing in fixed income
securities of the government; (v) increase the limit of investment in shares by provident funds and pension
funds from ten percent to twenty percent; and (vi) increase in ceiling investment in one company from one
percent to five percent. The new listing companies increased up to 782 in which only 4 companies are new
while the market capitalization was Rs. 524.148 billion.
The 1998 started with two major events whose influenced continued in 1999 and 2000. These events were,
first, nuclear tests, which ultimately had its effects on the financial sector in two ways: (i) imposition of
economic sanctions by foreign countries, (ii) internal handling of affairs by declaration of emergency under
article 232, and freezing of foreign currency accounts. Second the controversy between IPP and
government of Pakistan about regulating the Hubco project. These events adversely affected Karachi stock
market. The new listed companies decreased up to 774. Only one new company was listed in stock market.
The market capitalization also declined and reached to Rs. 301.1032 billion.
Pakistan stock market witnessed extraordinary volatility in 1999. January saw the KSE-100 index at 945 in
the aftermath of 1998 nuclear tests and subsequent sanctions followed by freezing of foreign currency

accounts and imposition of capital controls. After the external debt restructuring agreement with
multinational and bilateral lenders in the second quarter of 1999, KSE-100 index recovered to touch 1400.
Immediately thereafter, the Kargil crisis in Kashmir sent the market tumbling back to 1100, where it
became range-bound. Political uncertainty mounted in the second half of the year with the governments
focus completely removed from the economy but towards its own survival. On the political front, the
military backed technocrat government was likely to continue operating for the foreseeable future. From an
investors perspective, the relative stability on the political front was likely to reduce uncertainty. No new
company listed in KSE and listed companies decreased up to 765 and market capitalization slightly
increased up to Rs. 366.670 billion.
The year 2000 started with the credibility of government of Pakistans which was critically dependent on
delivering the comments of good governance, accountability of corrupt elements, and sustained economic
revival through reforms. Due to crackdown on willful bank loan defaulters had resulted in Rs. 10 billion
being recovered and some Rs. 30 billion being rescheduled within two months- It might be worth-noting
that while there was an increase in price and daily trading volume, there was no significant improvement in
the fundamentals of most of the companies during this period. However, settlements remained low and
carry over percentage continued to bulge. Besides, the carry-over trade through KATS 17 there was direct
Badla18. While Badla rate went up, it was also alleged that some financial institutions financed a large part
of Badla. Only three new companies were listed and listed companies reached up to 741 and market
capitalization was Rs.382.736 billion.
The year 2001 had been quite a dull year in terms of actual stock market activity in Pakistan. The
downward trend showed the reduction of KSE-100 index. The reasons were uncertainty regarding T+3
settlement system and the crack down operation by National Accountability Bureau on certain elements in
the market. The virtual removal of a leading investment bank from the stock market scene has only served
to further reduce the very small institutional presence in the market. From the global point of view after
attacks in New York and Washington, and on Indian parliament, the Indian Government with drew its high
commission from Pakistan and deployed its troops along international boarders. Market also witnessed a
brief clash between the Securities and Exchange Commission of Pakistan (SECP), and the Karachi Stock
Exchange (KSE) governing body over appointments to key posts of the KSE. The listed companies were
737 including only three new companies and market capitalization was Rs 296.144 billion.
17
Since 1997 the KSE has been introduced a state-of-art computerized trading system, KATS (Karachi Automated
Trade System). Initially it was used in selected stocks. In May 1998 open-outcry system was abolished and KATS was
fully introduced. It provides fair, transparent efficient and cost-effective market. With the installation of the KATS and
with its coming on line, these misunderstandings which often threaten client-broker relationships have greatly reduced.
18
Badla trading involved buying stocks with borrowed money with the stock exchange acting as an intermediary at an
interest rate determined by the demand for the underlying stock and a maturity not greater than 70 days

During Financial Year 2002, the KSE had implemented several structural developments, which included
complete implementation of the T+3 system, rationalization of risk management measures (deposit
requirements, capital adequacy and up-tick / down-tick fluctuation bands), changes in the carryover market,
and more recently, the launching of the new trading system. On the regulation front, the security and
exchange commission of Pakistan issued the Code of Corporate Governance on March 28, 2002, which
was included by all stock exchanges in their respective requirements. The KSE-100 index shot up by
2278.54 points and market capitalization also increased up to Rs. 550.55287 billion. Only four companies
were listed in Karachi stock market and listed companies reached up to 719. Due to this bullish
performance of Karachi stock market, the Financial Times London pronounced KSE as Asias fastest
growing stock market, and USA Today, and Business Week held the opinion about Karachi stock
exchange as one of the most performing stock markets.
The bullish trend of stock market continued during 2003 and KSE-100 index touched the highest point i.e.
4604.02. The reasons were expectations of significant increase in corporate profit, burgeoning market
liquidity, concomitant decline in interest rate, and privatization of large profitable public sector companies.
The listed companies were 705 in which only 6 companies are new and market capitalization reached up to
Rs 951.55 billion.
The performance of KSE showed improvement in 2004. The main factors are good corporate earnings,
restoration of investors confidence due to improvement in macroeconomic environments, settlement of
political disputes with neighboring countries and the expectation of political stability and continually of
economic policies. Seventeen new companies were listed in stock market and listed companies reached up
to 705 and market capitalization reached up to Rs. 1723.454 billion.
The continuation of bullish trend in KSE during 2005 is also observed and KSE-100 index first time cross
10000 points. This buoyancy is attributed a number of positive factors, including pro-growth
macroeconomic policies, a stable macroeconomic environment, a strong growth momentum taking firm
hold, appropriate reforms, adequate liquidity in the market, and good operating financial results from the
majority of the blue
chips companies19. The KSE-100 index shoots up by 10303.15 points and market
capitalization also accelerated up to Rs. 2467.9 billion. The listed companies were 662 and the new listed
companies were only 16.
The year 2006 maintained bullish trend momentum and made records in Karachi stock market. KSE-100
crossed the barrier of 12000 mark and reached 12273.77 points. The main reasons are i) the consistent and
transparent economic policies as a result obtained strong economic growth; ii) a successful privatization
process attracting foreign investors in prestigious organization like PTCL, National Refinery, sound
19
Pakistan Economic Survey 2005-06, Ministry of finance, government of Pakistan.

monetary policy of the SBP, maintenance of fiscal discipline and financial market reforms. Four new
companies were listed and listed companies reached up to 658. The market capitalization increased up to
Rs. 2801 billion.
The year 2007 began with the removal of Chief Justice of Supreme court by President General Musharraf.
Moreover, the Red Mosque incident in Islamabad, the restoration of Chief Justice of Pakistan, confusion
about imposition of emergency rule in the country and bomb blasts in the welcome procession of Ms.
Benazir Bhutto were other negative factors. The session on November 5 recorded a single day biggest
slump of 636 points due to the imposition of emergency rule in the country. The suspension of Pakistan
from the Commonwealth, Moodys downgrading of Pakistans outlook from stable to negative and the
uncertain political environment, led to a sharp fall in index in mid-November. Despite these negative
factors the Karachi stock exchange showed positive sentiments. There are several factors which are the
announcement of presidential elections and then re-election of President Musharraf: speedy privatization
process; attracting foreign investors in prestigious organizations; resolution of IPP (Independent power
producer) issue; allowing foreign investors to repatriate their funds without any restriction; reduction in the
interest rate by commercial banks; recovery of outstanding/over due loans; rescheduling of foreign debts
and prepayment of expensive foreign loans. Moreover, economic fundamentals, like as sound monetary and
fiscal policies with fiscal policies under controlled; higher revenue collections; lower inflation; rising
export earning; stable exchange rate; declining debt burden; and higher industrial growth also improved. As
a result the market capitalization increased up to Rs. 4019 billion and listed companies were 656 including
18 new companies.
The year 2008s started with uncertain situation. The reasons were the assignation of Benazir Bhutto, poor
law and order situation together with massive rioting raised the fears of foreign capital flight and bomb
blast in Marriot Hotel, Islamabad. However, the beginning of 2008 appears promising for the capital market
in Pakistan irrespective of the sub-prime crisis intensified its grip on the financial system in the world stock
markets in Pakistan. These have posted good gains KSE-100 index gained 11.6% in the mid of April 2008
and reached the highest level of 15,676 points on April 18, 2008 with a gain of 1747 points on the index
level at the beginning of 2008. Following this high time, however, the stock market has experienced of
sudden fall in the KSE-100 index more than 62% since it peaked in April 2008. The reasons are the decline
in macroeconomic fundamentals, worsening law and order situation and international freight capital.
Mainly on the back of foreign buying, the KSE100 index has risen 74 per cent since its trough in January
2009. Even after the recent sell off in equities, the KSE100 index has gained 33%. Foreign portfolio
investment (FPI) in the KSE has risen sharply during 2009. According to National Clearing Company of
Pakistan Limited (NCCPL) data, the cumulative net inflow of foreign portfolio investment increased by
US$ 431 million in Pakistan. The other positives factors during 2009 to which equity investors have
10

responded have included the restoration of macroeconomic stability following the balance of payments
crisis of 2008; the IMF program (signed in November 2008) having remained on track for over a year; the
upgrading of Pakistans sovereign rating by Standard and Poors, and the revision, to stable, of Pakistans
outlook by Moodys, both in August 2009; and the semblance of a growth recovery in the economy, for
large scale manufacturing in particular, despite the challenges. On the back of the net buying by offshore
investors, the KSE100 index crossed the 10,000 mark on 12th March 2010 after a period of 18 months.
4 Conclusions
It is analyzed the performance of Karachi stock market since 1990s. We have focused on Karachi stock
market which is a true and active stock exchange in Pakistan covering 75 percent of trading activity. The
review pointed out that the Karachi stock market got momentum during 1960s and made significant
increase in listed companies and market capitalization. However, this momentum could not maintain during
1970s. The reasons were separation of East Pakistan and nationalization policy. As a result sixty companies
delisted and eighteen companies were nationalized. During 1980s denationalization policy restored
however, the KSE could not get momentum before 1990. The 1990 provided new life to Karachi stock
market. The reasons are KSE was opened for foreign investors and financial reforms introduced. As a
consequence the depth and size of market improved significantly. However, this achievement could not
continue in later years. To improve the economic performance of KSE, the management of KSE and CLA
(corporate law authority) later SECP (security and exchange commission of Pakistan) has taken many
measurements. Due to unfavorable economic situation i.e. high inflation rate and unemployment rate and
widening budget deficit these measurement could not improve the performance of Karachi stock market.
Moreover, the Karachi stock market is driven by speculative sentiments. The overriding sentiments of
speculative and insider trading have been ruling the market and have often resulted in price volatility as
well as price manipulation. The markets response to fundamental investment-oriented events has been
dismal and less significance. It is suggested that the Karachi stock exchange should improve the quantity,
quality and creditability of information companies discloses to investing public. The information may
address the diversification, investors participation, and minimisation of unanticipated practices. Such
policy may protect the small investors interest that is always issued for developing and emerging stock
markets.
11

12

Table 1
Performance of Karachi Stock Market
Listed Company
Listed Cap (Rs. bn)
Market Cap (Rs. bn)
M. Cap % of GDP
New Listed Comp
Listing Cap (Rs. bn)
Bonus Issue (Rs. bn)
Right Issues(Rs. bn)
1991
542
37.024
189.518
18.641
61
5.297
N/A
1.100
1992
628
58.198
204.723
16.987
86
15.283
1.744
4.075
1993
653
69.476
370.247
27.78
38
5.5714
2.662
2.989
New Debt Listed

Listed Cap. (Rs. bn)
Fund Moblized
N/A
N/A
6.398
N/A
N/A
19.358
N/A
N/A
8.560
High
Low
Mean
Standard Deviation
CV
1672.78
1574.45
611.17
30.09
4.92
1714.57
1110.79
1343.25
141.94
10.57
2164.26
1069.79
1342.93
249.46
18.58
High
Low
N/A
N/A
N/A
N/A
N/A
N/A
Total Shares (M)

Average/day (M)
Trading Vol (Rs. bn)
TV % of GDP
361
1.5
NA
NA
725
3.02
74
6.865
894
3.89
114.572
9.547
1994
1995
1996
724
764
782
104.137
134.427
202.687
400.516
327.781
471.665
25.656
17.567
22.246
72
41
30
25.614
17.895
12.041
4.008
4.126
2.921
5.037
4.954
8.540
DEBT INSTRUMENTS
N/A
2
2
N/A
0.710
1.250
30.652
23.560
21.832
KSE-100 Index
2661.31
2090.66
1855.22
1936.14
1323.53
1332.14
2288.63
1671.83
1545.48
133.62
165.31
131.77
5.84
9.89
8.53
KSE ALL SHARE Index
N/A
N/A
1125.05
N/A
N/A
525.44
TRADING VOLUME
1831
2293
6732.65
7.86
10.38
29.40
153.453
272.059
222.397
10.861
16.116
11.396
1997
781
208.807
524.148
21.585
4
2.270
2.833
1.292
1998
774
212.153
301.1032
11.245
1
2.210
2.529
1.177
1999
765
223.023
366.670
12.479
4.342
6.511
2000
N/A
N/A
3.561
1
0.274
1.672
2
1.147
7.659
6.070
2067.98
1341.31
1699.85
168.24
9.9
1746.31
765.74
1193.33
317.62
26.62
1416.62
852.44
1133.35
133.23
11.76
2054.43
1276.05
640.18
201.84
31.53
886.49
567.69
1
0.274
2
1.147
1240.24
815.54
13306.14
55.19
129.698
5.89
18497.05
77.00
427.444
16.873
31329.98
127.88
1087.97
39.766
46158
186.901
1760.09
59.624
741
236.459
382.730
10.089
3
2.035
5.210
3.387
3
0.647
13

Table 1 (cont.)
Performance of Karachi Stock Market
2001
2002
2003
2004
2005
747
719
705
665
662
235.683
296.144
7.114
288.950
550.553
12.508
313.267
951.447
19.734
405.646
1723.454
25.276
465.006
2068
31.456
17
16
2.884
4.188
1.531
6.318
2.854
12.023
4.5626
4.773
9.393
New Debt Listed

Listed Cap. (Rs. bn)
Fund Moblized
5
5.658
10.074
14
7.555
25.897
6
2.749
16.705
High
Low
Mean
Standard Deviation
Coeff. of Variation
1550.42
1075.16
1347.71
95.03
7.05
2278.54
1322.07
1900.6
269.93
14.2
4604.02
2356.48
3484.22
687.31
19.73
High
Low
971.74
706.69
1671.09
846.69
2947.11
1473.2
Total Shares (M)

Average/day (M)
Trading Vol (Rs. bn)
TV % of GDP
23071
96.91
765.606
24.175
30942
147.42
1542.996
45.69
76380
309
3846.378
100.26
Listed Company
Listed Cap (Rs. bn)
Market Cap (Rs. bn)
M. Cap % of GDP
New Listed Comp
Listing Cap (Rs. bn)
Bonus Issue (Rs. bn)
Right Issues(Rs. bn)
66.837
28.076
9.648
14.313
14.731
9.164
DEBT INSTRUMENTS
5
7
4.775
10.525
86.344
47.766
KSE-100 Index
6218.40
10303.15
4473.03
6220.25
5274.79
7875.24
325.15
895.25
6.16
11.37
KSE ALL SHARE Index
3657.45
6683.14NA
2873.68
4105.07
TRADING VOLUME
85641
91449.67
344
364
4313.946
6352.489
75.904
96.455
2006
658
496
2801
36.358
14
25.209
18.755
12.801
2007
656
631
4019
44.231
16
56.081
23.349
35.110
2008
652
707
3778
36.732
14
14.274
24.808
25.110
2009
651
782
2143.2
17.56
11
10.705
26.744
29.987
6
6.900
29.791
3
6.00
42.530
7
2.35
23.5
1
4.2
42.56
12273.77
6972.510
10630.8
666.24
6.27
13722.46
9504.47
12735.4
1199.5
9.42
15676.34
11162.17
13419.25
725.163
5.403
12221.43
4815.34
8518.395
641.432
7.525
8184.60
4589.51
NA
NA
11148.68
8038.39
8791.08
3647.10
79454.53
324.50
6197.168
80.313
54042.363
222.40
5452.76
60.009
63316.12
256.34
6375.452
62.00
28332.78
115.64
2869.23
21.910
14

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Journal of Social Sciences & Humanities

University of Karachi.49(2) 12-26