December 3, 2001	Monday	Ramazan 17, 1422

PAKISTAN’S equity market is underdeveloped. Its capitalization—nearly $7 billion in 1999—was only three per cent of the South Asian market, which is dominated by India. Its debt market is in an embryonic stage of development.

The equity base is $4.5 billion with debt market size of $16.5 billion. Of the three stock exchanges, the Karachi Stock Exchange is the largest and the oldest with $3.7 billion listed capital. A total of 748 companies are listed on the KSE, accounting for over 70 per cent of total trade turnover. It sets the tone for other two exchanges. In the last decade, the KSE has witnessed periods of highs and lows, affected by a host of internal and external factors.

The early 90s witnessed the KSE index rising to historic apex of 2661 in 1994. The government policies in relation to privatization of state enterprises, deregulation, allowing private sector to set up commercial and investment banks, increased interest of investors in new public flotations were positive factors influencing the stock market.

There was tremendous growth in the number of companies and amount of capital listed on the market.The number of companies increased from 628 to 781 and capital from Rs 58 billion in 1992 to Rs 209 billion in 1997, with the average daily turnover rising from 3.3 million shares to 56 million shares in the corresponding period. The market capitalization at the KSE increased five-fold between 1990 and 1996. It touched the highest level of Rs610 billion in 1997.

Foreign investors showed keen interest as a net portfolio inflow of $3.3 billion was recorded between June 1991 and 1995. Independent power producers showed keen interest in the energy sector. Power sector received significant chunk of direct foreign investment in the early years of the 1990s. The net foreign fund flows demonstrated that market liquidity until end-1997 remained largely foreign driven.

But after the nuclear tests in May 1998 and freeze on dollar deposits,the stock market witnessed flight of foreign funds. A net outflow of six million dollars was recorded by August 1998 against an index high of 1746 on January 1. The market capitalization, which, as proportion of the GDP, had stood at 28 per cent in 1993, dropped to 15.6 per cent or Rs431 billion in May 1998. Post-nuclear scenario witnessed economic sanctions against Pakistan and suspension of the IMF assistance. The pace and level of economic activity suffered due to sharp decline in the private capital inflows and erosion of confidence. With the freezing of foreign currency accounts, workers remittances declined and foreign investment also fell. The unresolved controversy over tariff between the government and the independent power producers (IPP) and lowering of sovereign credit ratings of Pakistan by international credit rating agencies also had a bearing on the market. In May 2000, the stock exchanges of Karachi and Lahore suffered serious crises. The brokers indulged in heavy speculative trading and were unable to settle Rs