Table of contents
Stock Exchange
Vision of Karachi Stock Exchange
Mission of KSE
Top 20 KSE 100 Index companies
KSE 100 Index
Brief about Kse-100 Index
Roles of Stock Exchange
Raising capital for businesses
Mobilizing savings for investment
Facilitating company growth
Creating investment opportunities for small investors
Government capital-raising for development projects
Why list at KSE?
Source of Funds
Exit Strategy
Data Services
Major Requirements of Listing
How the Karachi Stock Exchange (KSE) can be improve
“An association of stockbrokers who meet to buy and sell stocks and bonds according to fixed regulations.”
The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Sindh,Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings.
Its current premises are situated on
Stock Exchange Road
In the heart of
Karachi's Business
District.
Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan. It was
declared the “Best Performing Stock Market of the World for the year 2002”.
As of Dec 8, 2009, 654 companies were listed with a market capitalization of Rs. 2.561 trillion (US$ 30.5 billion) having listed capital of Rs: 705.873 billion (US$ 10.615 billion). The KSE 100TM Index closed at 10246 on April 01, 2010.
Vision of Karachi Stock Exchange
“To be a leadung financial institution, offering efficient, fair and transparent securities in the market and enjoying full confidence of the investors.”
To strive and provide quality and value added services to capital market in an efficient, transparent and orderly manner: compatible with international standards and best practices.
To provide state of the art technology and automated trading operations driven by a team of professionals in accordance with good corporate governance.
To protect and safeguard the interest of all its stockholders, i.e. member listed companies, employees and ivestors at large, and
To reflect country’s ecinomic health and behavior and play its role for the growth, development and prosperity of Pakistan.
Company Services
Customized services and state-of-the-art technology infrastructure, have given us an edge over other exchanges in the region.
Fully automated trading, clearing and settlement system.
Internet routed trading facility.
Gateway trading (Order Management System).
Investors and fund managers can also access information through Display Only Terminal
Internet trading facilities available.
Brokers connectivity to KSE through VPN (to ensure security of data).
Top 20 KSE 100 Index companies
Number
|
Company Name
|
Weight age (%)
|
Market Capitalization(PKR)
|
1
|
OGDCL
|
14.14
|
550,948,930,000
|
2
|
MCB
|
7.17
|
279,583,150,000
|
3
|
National Bank of Pakistan
|
5.43
|
211,726,900,000
|
4
|
|
5.06
|
197,201,080,000
|
5
|
Standard Chartered Bank
|
4.41
|
171,704,800,000
|
6
|
PTCL
|
4.28
|
166,810,800,000
|
7
|
United Bank Limited
|
4.13
|
161,025,160,000
|
8
|
Jahangir Siddiqui & Company
|
2.66
|
103,600,000,000
|
9
|
|
2.08
|
81,034,440,000
|
10
|
Allied Bank Limited
|
2.01
|
78,371,670,000
|
11
|
|
1.93
|
75,280,250,000
|
12
|
|
1.71
|
66,824,220,000
|
13
|
Fauji Fertilizer Company
|
1.68
|
65,607,390,000
|
14
|
ABN AMRO
|
1.63
|
63,666,370,000.
|
15
|
Engro Chemical
|
1.45
|
56,492,990,000
|
16
|
Arif Habib Securities
|
1.40
|
54,660,000,000
|
17
|
NIB Bank
|
1.27
|
49,320,250,000
|
18
|
Kot Addu Power Company
|
1.19
|
46,565,400,000
|
19
|
EFU General Insurance
|
1.16
|
45,300,000,000
|
20
|
|
1.13
|
43,869,030,000
|
KSE 100 Index
The KSE 100TM Index was introduced in 1991 and comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Exchange. Out of 35 Sectors, 34 companies are selected i.e., one company from each Sector (excluding Open-End Mutual Fund) on the basis of the large market capitalization and the remaining 66 companies are selected on the basis of highest market capitalization. This is a total return index i.e. dividend, bonus and rights are adjusted. The same methodology is applicable in the case of All Share Index, which includes all the listed companies, (except Open-End Mutual Funds).
Most recognized index of the KSE
Representation from all sectors of the KSE and includes the largest companies on the basis of their market capitalization
Represents over 85% of the market capitalization of the Exchange.
The primary objective of the KSE100 index is to have a benchmark by which the stock price performance can be compared to over a period of time. In particular, the KSE 100 is designed to provide investors with a sense of how the Pakistan equity market is performing. Thus, the KSE100 is similar to other indicators that track various sectors of the Pakistan economic activity such as the gross national product, consumer price index, etc.
BRIEF ABOUT KSE-100 INDEX
The KSE-100 Index was introduced in November 1999 with base value of 1,000 points. The Index comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Exchange. Out of the following 35 Sectors, 34 companies are selected i.e. one company from each sector (excluding Open-End Mutual Fund Sector) on the basis of the largest market capitalization and the remaining 66 companies are selected on the basis of largest market capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted.
LIST OF SECTORS
- Open-end Mutual Funds
- Close-end Mutual Funds
- Modaraba
- Leasing Companies
- Investment Banks/Inv. Cos./Securities Cos.
- Commercial Banks
- Insurance
- Textile Spinning
- Textile Weaving
- Textile Composite
- Woolen
- Synthetic & Rayon
- Jute
- Sugar & Allied Industries
- Cement
- Tobacco
- Refinery
- Power Generation & Distribution
- Oil & Gas Marketing Companies
- Oil & Gas Exploration Companies
- Engineering
- Automobile Assembler
- Automobile Parts & Accessories
- Cables & Electric Goods
- Transport
- Technology & Communication
- Fertilizer
- Pharmaceuticals
- Chemical
- Paper & Board
- Vanaspati & Allied Industries
- Leather & Tanneries
- Food & Personal Care Products
- Glass & Ceramics
- Miscellaneous
STOCK SELECTION RULES
The selection criteria for stock inclusion in the recomposed KSE100 Index are:
Rule # 1 Largest market capitalization in each of the 34 Karachi Stock Exchange sectors excluding Open-end Mutual Fund Sector;
Rule # 2 The remaining index places (in this case 66) are taken up by the largest market capitalization companies in descending order.
Rule # 3 Company which is on the Defaulters’ Counter and/or its trading is suspended; declare Non-Tradable (i.e. NT) in preceding 6 months from the date of recomposition shall not be considered in the recomposition of KSE-100 Index.
A number of the 34 top sector companies may also qualify for inclusion on the basis of their market capitalization. In other words, companies may qualify solely under rule 1, solely under rule 2, or under both.
The fact that the sector rule is identified as Rule 1 does not imply that it is more important, only that the nature of the selection process is such that it is the screening that is done first.
CALCULATION METHODOLOGY
In the simplest form, the KSE100 index is a basket of price and the number of sharesoutstanding. he value of the basket is regularly compared to a starting point or a base period. In our case, the ase period is 1st November, 1991. To make the computation simple, the total market value of the ase period has been adjusted to 1000 points.
Thus, the total market value of the base period has een assigned a value of 1000 points. n example of how the KSE100 Index is calculated can be demonstrated by using a three-stock ample. Table 1 illustrates the process. First, a starting point is selected and the initial value of the hree-stock index set equal to 1000.
Taking stock A’s share price of Rs. 20 and multiplying it by its total common shares outstanding of 50 million in the base period provides a market value of one billion Rupees. This calculation is repeated for stocks B and C with the resulting market values of three and six billion Rupees, respectively.
The three market values are added up, or aggregated, and set equal to 1000 to form the base period value. All future market values will be compared to base period market value in indexed form.
Monthly Performance
Market monthly performance during the period January 2008 to October 2009 is given under with high rated index showing in bold text. The highest ever closing for KSE 100 Index was achieved at 15,676.34 points on 18 April, 2008.
Following a staggering loss of 42 per cent in four months (April 2008 to August 2008), the regulators had put planks under the KSE-100 index at 9,144 points on August 28, 2008 to prevent a further fall. The floor was finally removed on December 15, 2008 that had brought the bourse to a virtual halt for more than 100 days.
Number
|
Volume
|
Index
|
Date
|
1
|
375,074,240
|
13,666.85
|
01/01/2008
|
2
|
151,358,160
|
13,974.40
|
01/02/2008
|
3
|
196,083,660
|
14,816.50
|
03/03/2008
|
4
|
218,399,820
|
15,210.17
|
01/04/2008
|
5
|
257,965,456
|
14,956.82
|
02/05/2008
|
6
|
169,125,456
|
12,281.20
|
02/06/2008
|
7
|
60,751,820
|
12,221.53
|
01/07/2008
|
8
|
72,835,000
|
10,171.39
|
01/08/2008
|
9
|
23,691,000
|
9,210.15
|
01/09/2008
|
10
|
1,560,000
|
9,178.97
|
06/10/2008
|
11
|
457,000
|
9,183.14
|
03/11/2008
|
12
|
102,000
|
9,187.10
|
01/12/2008
|
13
|
75,434,000
|
5,753.18
|
01/01/2009
|
14
|
177,668,000
|
5,333.95
|
02/02/2009
|
15
|
85,351,000
|
5,681.29
|
02/03/2009
|
16
|
207,282,000
|
6,931.90
|
01/04/2009
|
17
|
123,539,000
|
7,062.25
|
04/05/2009
|
18
|
112,955,000
|
7,210.34
|
01/06/2009
|
19
|
104,614,000
|
7,270.72
|
01/07/2009
|
20
|
127,459,000
|
7,716.99
|
03/08/2009
|
21
|
302,831,000
|
8,769.24
|
01/09/2009
|
22
|
222,370,000
|
9,301.18
|
01/10/2009
|
Stock exchanges have multiple roles in the economy, this may include the following:
Raising capital for businesses
The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public.
Mobilizing savings for investment
When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as agriculture, commerce and industry, resulting in stronger economic growth and higher productivity levels and firms.
Facilitating company growth
Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. A takeover bid or a merger agreement through the stock market is one of the simplest and most common ways for a company to grow by acquisition or fusion.
Stock exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses.
By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors).
Creating investment opportunities for small investors
As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors.
Government capital-raising for development projects
Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government.
At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.
Why list at KSE?
Source of Funds
Ability to tap a broader universe of investors as well as larger pool of investment capital.
More capital can be raised through additional stock offerings if sufficient investor interest exists.
In a tight monetary cycle, with high debt costs, equity markets are a more efficient and cost effective way for companies to get funded.
Flexibility of Use
Hire new staff, expand existing operations or fund acquisitions.
Use Listed Shares as “swaps” for acquisitions and mergers; this can accelerate domestic, regional and global growth strategies.
Decreases a company’s reliance on raising funds on debt markets and reduces annual interest payments.
Be able to attract and retain more highly qualified personnel if it can offer stock options, bonuses, or other incentives with a known market value, especially in a tight labor market.
KSE is amongst the lowest listing and annual fees in the region.
Exit Strategy
Existing shareholders can more easily sell their interests at retirement, for diversification, or for any other reason. A ready market always exists for a publicly listed company.
More public attention due to more media interest.
Coverage from Investment Analysts both domestically and internationally can provide the company with a greater profile and visibility.
Ultimately, a more diversified group of investors will take an interest in the company, increasing demand for its shares thus raising its value.
Data Services:
TV channels also display KSE ticker through live feeds from KSE system.
Investors provided customized data packages for trading and assessment of their portfolio on a real time basis.
Data feed provided to major international redistributors (Reuters, Bloomberg) on real time basis.
KSE website offers data of market on real time basis, including listed company profiles, snap shot of financials, press releases and summary of market activities on real time basis.
Major Requirements of Listing include
Minimum paid up capital of Rs. 200 million for a company seeking listing
To succeed public offer of equity, it has to be subscribe by at least 500 applications
Provisions of Listing Regulation 6-A relating to minimum fresh public offering through prospectus as well as the minimum public offering requirements by way of Offer For Sale as laid down under the Companies (Issue of Capital) Rule, 1996.
The offering document has to be cleared by KSE before it is submitted to the Securities & Exchange Commission of Pakistan for approval.
The company seeking listing is required to fulfill the relevant requirement of the Exchange under the Listing Regulations and the disclosures as required under the Second Schedule of the Companies Ordinance 1984 & Companies (Issue of Capital) Rules, 1996.
KSE Yesterday
Incorporated on March 10, 1949
Premier Stock exchange of the country
Started with 5 companies that had a paid up capital of Rs. 37 million
Trading was done through an open-out-cry system
The first index was the KSE 50 Index
KSE Today
Exchange owned by 200 members
652 companies listed
Modern Risk Management System
Pre Trade Margin Verification
Electronic Trading through KATS
Market capitalization
US $ 54.28 billion
KSE Tomorrow
Publicly Listed Company with strategic investor
Broad based investor participation
Cross border listings of companies
Opening up of branches in other cities and in the region
Future Plans of KSE
The following are in process:
Demutualization of the Exchange – public ally listed with strategic investor
Promotion of Derivative Products
New Services (Data Vending)
Debt Market Trading Platform
Investors education programs
How the Karachi Stock Exchange (KSE) can be improved
Conclusion:
Currently, demutualization and incorporation should be the first priority of the KSE. As demutualization and incorporation is taking time so KSE should start stepping towards internationalization by developing business relations with other regional and international exchanges and try to attract the regional and international companies for cross border listing on its indices. Remaining three suggestions: separate markets for different capital companies, improvement in the derivative market and upgrading in trading, clearing and settlement process can be applied with the growth of KSE but these all are also necessary to achieve the world class standard of stock markets.
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