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Role of Karachi stock Exchange in economic development

stock crashThe role of stock exchange market is to raise long-term funds for corporation (primary- market) while providing the trading platform for the trading securities (secondary market). Stock exchange markets encourage investment through provision of a lot of resources. This enables the cooperation to attain a lot of funds for their business expansion. Karachi Stock Exchange provides a platform to get the funds to lead their companies for the betterment. It in turn enables the capital at domestic and international level. From a broader perspective, the role of stock exchange is vitally important for the countries moving towards greater interests. Karachi Stock Exchange is successfully playing the same role for last few decades for its country.

 

Only members can do the trade. Primary market carries the initial offerings of the stocks and bonds to investors by definition. The secondary market is platform for the subsequent trading. Supply and demand in stock markets is driven by various factors. There is usually no compulsion to issue stock via the stock exchange itself. Such trading is said to be off exchange or over-the-counter. This is the usual way for the exchange. Increasingly, stock exchanges are part of a global market for securities

Stock exchange apart from being hub of market, they have very important role to play in the economy of the country. Some of them are listed below.

Raising capital for businesses

Exchanges help companies to capitalize by selling shares to the investing public.

Mobilizing savings for investment

They help public to mobilize their savings to invest in high yielding economic sectors, which results in higher yield, both to the individual and to the national economy.

Facilitating company growth

They help companies to expand and grow by acquisition or fusion. This helps domestic companies to tap foreign savings through foreign flows. This is important for Pakistan where the sizeable saving- investments gap of 5% of GDR.

 

Profit sharing

They help both casual and professional stock investors, to get their share in the wealth of profitable businesses.

 

Corporate governance

Stock exchanges impose strict rules to get listed in them have better management records than privately held companies.

 

Creating investment opportunities for small investors

Small investors can also participate by buying a small number of shares.

 

Government capital raising for development projects

KSE helps the government as well as public and private sector to raise money through privatization and GDR offerings.

 

Barometer of the economy

They maintain the stock indexes which are the indicators of the general trend in the economy and regulate the stock price fluctuations. It serves as the economic barometer and can give important signals to economic policy. Makers regarding to how their decisions to interest rates, taxes and currency volatility impacts different sectors of economy.KSE is acting to the leading sector in realizing the real side of economy and an indicator of growth.

 

Wealth Effect

This provides the chances of redistribution of wealth through increase in stock prices and dividends with investors getting the chance to share in wealth in businesses profits.

 

Effect on Pensions

 

Anybody with a private pension or investment trust will be affected by the stock market, at least indirectly. Pension funds invest a significant part of their funds on the stock market. If share prices fall too much, pension funds can struggle to meet their promises. The important thing is the long term movements in the share prices. If share prices fall for a long time then it will definitely affect pension funds and future payouts.

 

Confidence

 

Often share price movements are reflections of what is happening in the economy. A fear of recession and global slowdown could cause share prices to fall. The stock market itself can affect consumer confidence. Bad headlines of falling share prices are another factor which discourage people from spending.. However, there are times when the stock market can appear out of step with the rest of the economy. In the depth of a recession, share prices may rise as investors look forward to a recovery two years in the future.

 

Investment

Karachi stock exchange provides  investment opportunities for the small investors. They can own shares in the companies listed at Karachi stock exchange just like large investors.

 

The healthy trend in this regard is Online Trading which leads to greater awareness for retail participation and  it provides the benefits for the large number of people.

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About Emaad Qureshi