Benchmark index grew at annualised rate of 14pc since 1991

Published August 3, 2021
The research report did not include inflation-adjusted return of the KSE-100 index though. — AFP/File
The research report did not include inflation-adjusted return of the KSE-100 index though. — AFP/File

KARACHI: The benchmark index of the Pakistan Stock Exchange (PSX) has grown at an annualised rate of almost 14 per cent since its inception 30 years ago, according to a research report issued by Topline Securities on Monday.

This means that anyone who held for 30 years a portfolio mirroring the KSE-100 index would have turned an initial investment of Rs1,000 into Rs47,000 by the end of 2020-21 — a gain of 47 times.

In dollar terms, the annualised return has been 7pc over the last 30 years. This means a $1,000 investment in line with the KSE-100 index would have grown more than seven times to $7,273 even after adjusting for currency depreciation.

The research report did not include inflation-adjusted return of the KSE-100 index though. “It’s difficult to provide inflation-adjusted returns due to data constraints,” said Umair Naseer, associate director for research at Topline Securities, while speaking to Dawn.

Research suggests no investor would’ve suffered loss had they invested for a minimum of any six-year period

Created in 1991 with a base value of 1,000 points, it’s a total return index that is adjusted for dividend, bonus and rights. The index currently stands at 47,453 points.

The index consists of 100 companies selected on the basis of the sector representation and highest free-float capitalisation, meaning shares that can be publicly traded easily and aren’t held by sponsors.

One company with the largest market capitalisation from each of the 36 sectors is selected from all listed sectors (except open-end mutual funds). The remaining 65 companies are selected with the largest market capitalisation in descending order.

“The 1990s were not good for investors as the KSE-100 index generated a CAGR (compound annual growth rate) of only 3pc. In the following 10 years, the gain was far superior at 25pc. The return during the last decade (2011-2021) was in line with the 30-year return of 14pc,” said Mr Naseer.

The index gained in 21 out of the 30 years (70pc) whereas it closed in the red nine times (30pc). No single six-year rolling returns were without any gains. It means no one would have lost any money had they invested for a minimum of any six-year period since 1991.

However, the research revealed the market has not been too kind to day traders — investors who buy and sell stocks to profit off relatively short-lived, intraday price changes. Only 54pc of the trading sessions closed positively while 46pc of the days recorded a decline over the 30-year period.

Similarly, the index closed in the positive zone in 58pc of the months since 1991 whereas it closed on a negative note 42pc of the times.

The research showed the longest period of non-stop annual gains was from 2009-10 to 2016-17 when the index gained 550pc in eight years. The longest bearish spell was from 2017-18 to 2018-19 when the index came down 27pc in two years.

The best year for the KSE-100 index was 2002-03 with a 92pc return whereas 1997-98 was the worst year when the index declined 44pc.

The KSE-100 index is the “most followed” and “most reported indicator” in Pakistan. It’s one of the 11 indices that track share price movements on the PSX.

Other indices are KSE-30 index, All-Share index, KMI-30 index, NIT Pakistan Gateway index, UBL Pakistan Enterprise index, Meezan Pakistan index, NBP Pakistan Growth index, All-Share Islamic index, Oil and Gas Tradable Sector index (OGTI) and Banking Sector Tradable index (BKTI).

Published in Dawn, August 3rd, 2021

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