KARACHI, Jan 20: When the investors at the Karachi Stock Exchange are talking about the rise and fall of the index, they almost always mean old timer KSE-100 index. The KSE-30 born on Sept 1, 2006 has failed to capture the investors’ gaze.
The need for a new index was felt as lopsidedness of KSE index of 100 shares, based on market capitalisation, looked all too obvious. Companies with very small float such as Oil & Gas Development Company (OGDC) carried the heaviest weight age in the 100 share index.
A one rupee movement in the price of OGDC stock could shake the KSE-100 index by 20 points either way. Three or four major scrips marching together could set the trend of the market. Everyone including the corporate monitors agreed that the KSE-100 index misrepresented the market.
So here was the index based on ‘free-float’ of shares, rather than on the basis of paid-up capital. Moreover, other indices the KSE-100 and KSE All-Shares represented ‘total returns’ of the market and were not ‘dividend adjusted’. The KSE-30 Index was adjusted for dividends and right shares.
If so much was right, what went wrong? A fund manager with substantial sum under management pointed out that the KSE-30 was ‘extremely’ volatile. Checking the facts, the money management guru looks to be right.
The KSE-30 index started out on Sept 1, at the base level of 10,000. On the last closing day of trading on Friday (Jan 19) or four and a half months latter, the index is sitting at 13,393, reflecting escalation of 3,393 points. During the same period KSE-100 has risen from 10,064 to 10,641, showing an increase of only 577 points. Consider the huge gap between 577 and 3,393 or a gain of 6 per cent and 34 per cent. On which one must market rely?
An asset manager says, he always thought it would be extremely difficult to wean investors to the new index. He pointed to the other index that sits on the KSE: The KSE All share index. “How many people ever even cast a cursory glance at that index?”, he asks and points to at least half a dozen other stock indices introduced by private parties, none of which have been able to divert general investors’ attention from KSE-100 index.
It is difficult to loosen the gripping power of the long held index. Indian stock markets have been introduced to no less than 15 indices, yet BSE-100, retains the popularity. Japan has just two Nikkei 225 and the less known Topix. Malaysian market trades on just one: KLCI (KLSE Composite Index). Almost eight indices gauge the UK market, but FTSE 100 index is the one that enjoys the popular following; CAC 40 does that on the French bourse and DAX on the German market.
The world’s largest New York Stock Exchange also could boast the largest number of indices, which happen to be 52, not including some industry specific indices. But only a couple of them catch investors’ interest: Dow Jones Industrial Average; Dow Jones Composite Average and NASDAQ.
Does that suggest that the KSE should dismiss the 30-index? That would be a dumb idea. Let that stay. Some day, let’s hope years latter, the ‘benefits’ of the new index might be realised by the people. It took a generation to make them call Zaibunnisa Street, which once was Elfy; Ibrahim Ismail Chundrigar Road, changed to McLeod Road (do some people still call it by the same name after over 30 years of change) and the ‘heavyweight’, yet Islamised name of Maulana Tameezuddin Khan Road, once simply called the Queens Road.
A workable idea, if the KSE wants to promote the 30-index, would be to scrap the other two old indices (KSE-100 and KSE-All Share) so as to force investors to concentrate on KSE-30.
But just how much interest the KSE itself has in forwarding the 30 index can be gauged from the fact that the bourse’s web site (www.kse.com.pk) ‘homepage’ not only mentions the daily rise or fall of KSE-100 index, but also displays its hourly trend on a neatly presented chart. Interestingly, there is no mention of the KSE-30 index.