KARACHI, June 12: Sharp rise of 46 per cent in equity index; increase in foreign portfolio investment; slower corporate debt market and a bevy of reforms were the salient features of the country’s capital market, as gleaned from the Q3-FY02 report of the State Bank of Pakistan.

The Karachi Stock Exchange witnessed a volatile Q3-FY02 with the KSE-100 index closing with net gain of 46.7 per cent at 1,868.12 points, SBP report noted.

It observed that the previous quarter ended December 31, 2001 had closed on a negative note, at 1,273.06 points, owing to the December 13, 2001 attack on the Indian Parliament and the ensuring border tensions, which overshadowed the positive economic developments during FY02. With Pakistan emerging as key United States ally, market made exceptional gain of 347 points in January 2002, ranking it as top performing emerging market for the month by Morgan Stanley Composite Index (MSCI).

“Unfortunately, the market momentum was broken in mid-February by the KSE circular, prudently reminding members of the stringent minimum capital adequacy rules introduced recently”, SBP said. As a result, index dropped by 119 points in three trading days before recovering on the back of strong performance reported by Hubco, MCB and Askari Bank. “Thereafter, sentiment on oil marketing company stocks dominated the market, taking the market to its Q3-FY02 peak of 1,930.46 on March 14, 2002 as the government announced a much awaited increase in their margins”. SBP said that the market took that as a prelude to the privatization of PSO. But the index was unable to remain above 1,900 points and consolidated around the 1,850 levels.

Foreign investment: The third quarter witnessed an increase in foreign portfolio investment in the stock exchange. During the first two months of the quarter (for which figures had been compiled), market saw net inflow of $50 million which stood in sharp contrast with net outflow of $32 million in the previous quarter. The increase in foreign investment was stated to be in line with the rise in KSE-100 index. “This appears to reflect greater confidence of foreign fund managers in the Pakistani market’s prospects due to its positive economic outlook, hefty reserves and stable exchange rate”, SBP observed.

During FY02, the KSE had implemented several structural developments, the Bank said and listed complete implementation of the T+3 system, rationalization of risk management measures (deposit requirements, capital adequacy & uptick/downtick fluctuation bands); changes in the carryover market and more recently the launching of the new trading system. On the regulation front, the SECP issued the “code of corporate governance” on March 28, which was included by all stock exchanges in their respective listing requirements.

Debt capital market: SBP noted that private corporate debt market had seen brisk activity since the beginning of fiscal year with 13 issues (Term Finance Certificates) floated in the market during the financial year 2002. But only one TFC was launched during the third quarter of the year: that of Reliance Weaving Mills Limited. The size of the TFC was Rs150 million, issued on February 6. But the SBP concluded: “The future outlook (for TFCs) is positive as a number of large issues are in the pipeline”.