REVIEW ABOUT KARACHI AND LAHORE STOCK EXCHANGE Karachi Stock ExchangeThe Karachi Stock Exchange or KSE is a stock exchange located in Karachi, foundedin 1947, it is Pakistans largest and oldest stock exchange, with many Pakistani as wellas overseas listings. Its current premises are situated on Stock Exchange Road, in theheart of Karachis Business District. Karachi Stock Exchange is the biggest and mostliquid exchange in Pakistan. It was declared the “Best Performing Stock Market of theWorld for the year 2002”. As of 2010, more than 700 companies are listed. By 30 July2010 total market capitalization of the KSE reached Rs2.95 trillion, approximately 35billion dollars.KSE Indices:Currently, there are three indices operating in Karachi Stock Exchange. 1. KSE 100 Index 2. KSE 30 Index 3. KMI 30 Index KSE Index:Karachi Stock Exchange 100 Index (KSE-100 Index) is stock index acting as abenchmark to match up to prices on the Karachi Stock Exchange (KSE) over a phaseof time. In shaping representative companies to figure out the index on, companieswith the maximum market capitalization are chosen. However, to make sure full marketversion, the company with the uppermost market capitalization from each segment isalso integrated.There are four indicators of market performance: ● Market Capitalization ● Value Turnover ● Traded Volume ● Composite Index
Interest rates, foreign exchange, inflation, growth rates - these are some othereconomic indicators, which affect the performance of the Stock Market. Favorablegrowth and inflation rates, as well as stabilized interest rates and foreign exchange, aregood news for the stock market. They usually give a boost to the market performanceas these indicate sound economic status. Soaring interest rates, on the other hand,usually push investors from the stock market to some interest-bearing investments, asthey offer better returns than stock investing.The Karachi Stock Exchange KSE-100 Index is the bench mark for our market, itcomprises of the top companies from each of the 34 sectors on the KSE, in terms ofmarket capitalization. The rest of the companies are picked on market capitalizationranking, without any consideration for the sector to make a sample of 100 commonstocks with base value of 1,000 in late 1991. There are two other indices; KSE-30Index, which is based on free float capitalization of top 30 companies and KSE allshares Index which is based on full market capitalization of all listed companies at theExchange.An index, a composite figure, becomes a benchmark index when you choose it asthe standard against which to measure your own portfolios performance over time.Many investors like to keep track of how companies are performing in general. Whena companys share price moves up or down, it shows, whether it is perceived to belucrative by the investors.Movements in share prices are measured by various indices. These provide abenchmark against which you can compare the performance of your shareholdings.The most quoted index is the KSE-100. It comprises of the 100 largest companies onthe Stock Exchange and is updated minute by minute during trading hours. The indexreflecting all the companies on the Stock Exchange is the KSE-All Share Index and theKSE-30 Index comprises of top 30 companies.Various investment companies have made their own indices to keep track of theperformance of their portfolios. There are three major types of indices calculated tohelp private investors track the performance of their investment portfolios: ● The Income Portfolio represents the performance of a portfolio designed to provide a regular flow of income. ● The Growth Portfolio is for the investor seeking capital growth in his or her portfolio. ● The Balanced Portfolio represents a balanced portfolio providing both capital and income.
The indices are made up of three broad types of asset: Pakistani equities, foreignequities, bonds and PIBs. Lahore Stock ExchangeLahore Stock Exchange was established in October 1970 and is the second largeststock exchange in the country with a market share of around 12-16% in terms ofdaily traded volumes. LSE has 519 companies, spanning 37 sectors of the economy,that are listed on the Exchange with total listed capital of Rs. 555.67 billion havingmarket capitalization of around Rs. 3.64 trillion. LSE has 152 members of whom 81 arecorporate and 54 are individual members.Activities of Lahore Stock Exchange (LSE) have increased significantly in all operationalareas since its inception. Over the years, LSE has successfully met various challengesand has now emerged, fully geared and positioned to aggressively compete with itsfellow Exchanges, contributing towards the growth of Capital Markets in Pakistan.The two distinct indices the LSETRI and the LSE-25 are weighted by their listed capitaland have identical company selection criteria. Both the indices are composed of 25companies selected on the basis of the highest turnover at the Lahore Stock Exchange.However, they are distinguishable from each other by the treatment of corporateactions of component companies (i.e dividends, bonus, rights, etc.). Of particularinterest to analysts is the fact that the two indices are based on ordinary shares listedat the Lahore Stock Exchange, and the fact that the Exchange is making public thequalifying/disqualifying criteria as well as a negative list.On a very basic level, any stock market index is simply a numerical value that measuresthe change in the market. In Pakistan, the main objective for the construction ofan index is to track the performance of the various listed stocks according to theirmarket capitalization. In general, a capital weighted index is composed of a basket ofsecurities, which captures the change in market capitalization due to the variation inprices. Mathematically this can be represented by:
The index value itself is simply a number, which represent the total market value ofall companies within the index at a particular point in time compared to a comparablecalculation at the starting point also referred to as the base value. The Lahore StockExchange through this paper is introducing two market value indices (stock price timesnumber of share outstanding), which consist of 25 stocks each. The same formula isapplicable for both the indices and is represented by: