In January this year, the Pakistan government combined the three existing stock exchanges in Karachi (1947), Lahore (1970) and Islamabad (1989) into a single unit under the Demutualization Act (2012). This was the direct result of a dire need to have an organized operation in relation to stock exchange within Pakistan. There have been a few changes due to this merger including separation of ownership and trading rights. In addition, the regulatory and commercial sectors have been detached for increased efficiency. According to KSE Stocks, 578 companies have been listed as of this month under the watchful eye of SECP and PSX Limited. It has been reported that 35 business sectors are currently participating in Pakistan Stock Exchange with the intention of market capitalization. PSX is doing quite well considering the present political and economic crisis with a total market capitalization of Rs. 7,835.845 billion. Present investors and new comers are optimistic about the future of Pakistan Stock Exchange under the new management and updated regulations.
The recently established Pakistan Stock Exchange (PSX) in Karachi has two basic indices namely, Karachi Stock Exchange 100 Index and Karachi Stock Exchange 30 Index. They both possess diverse histories and significant variation owing to their individual roles in Pakistan Stock Exchange.
Karachi Stock Exchange 30 Index
The idea of Karachi Stock Exchange 30 Index was first put into practice in mid 2005 as the government wanted to create an indicator of economic development in Pakistan. Hence, Karachi Stock Exchange 30 Index serves to gauge how well Pakistan’s economy has done over a certain period of time. It was introduced with a base value of 10,000, which is considerably higher than that of Karachi Stock Exchange 100 Index displaying the contrast between the two.
The best 30 companies are part of Karachi Stock Exchange 30 Index, which works through a free-float capitalization method. Unlike the other index, Karachi Stock Exchange 30 Index takes into account alterations that may be required owing to dividends and right shares. In the end of 2014, hit an all time high of Karachi Stock Exchange 30 Index 20,830.07.
Karachi Stock Exchange 100 Index
This index is the older of the two therefore; it has seen a lot of ups and downs as the economy fell to recession and flourished under good governance. Karachi Stock Exchange 100 Index was first introduced in late 1991 with base value of 1000 points. It has demonstrated consistent development since its establishment, hitting a record breaking 14,814 points in December 2007. However, this success barely lasted a day before taking a severe beating as ex-PM Benazir Bhutto was assassinated the very next day causing chaos in the stock exchange market.
The criteria of company selection in Karachi Stock Exchange 100 Index consist of two parts. The first is based on sector representation from all 35 business sectors in the Pakistan Stock Exchange. This means that 35 companies are filtered off depending on their free-float capitalization. In the second stage, 65 more are added from the ones with the greatest free-float capitalization. Every 6 months, the companies in Karachi Stock Exchange 100 Index undergo stringent reviewing to determine their eligibility for this index. Any shares which are tied up or not accessible for trading are not considered while evaluating a candidate. Keeping the focus on free-float has served Karachi Stock Exchange 100 index quite well so far and there is much potential for the coming years. The best performance yet of this index was 39, 257 points just this month.