KARACHI, Oct 29: “Foreign investment has been a major growth driver of the Pakistani capital markets during FY07,” states the annual report of the State Bank of Pakistan for FY07.

On the one hand, equity markets in Pakistan offered an attractive price-to-earnings (p/e) value of 12.8 times and on the other hand, the market traded at a discount in comparison with regional markets, where the average p/e stood at 15.1 times.

As a result foreign investment flows (in SCRA account) saw a sharp rise from $354 million in FY06 to $980m in FY07. “However, the KSE-100 index still lags behind all major stock exchanges in Asia”, the report noted.

In overall terms, the benchmark KSE-100 index grew by 37.9 per cent in FY07, in spite of facing two “severe market corrections” in the first half of financial year: The first one in August and the next in November-December. The report traces factors that led to those set backs.

The Central Bank mentions: “One of the reasons for the robust growth in the KSE-100 index in H2-FY07 has been the increase in CFS limit”. With rising CFS investment, CFS volumes also rose sharply, “indicating investors’ interest in CFS”, the report stated and observed that besides the increase in CFS cap, the exemption from capital gains tax until June 2008 also augmented the market momentum in January 2007.

The SBP indicated that profit after tax (PAT) of companies listed on KSE had increased by 17.5 per cent in calendar year 2006 as compared to 2005.

Dilating on sector-wise performance at the KSE, the bank stated that the KSE was once dominated by oil marketing and exploration companies on account of the number of shares traded and market capitalisation. But owing to rising profitability, the commercial banking sector had managed to take the lead in the market in calendar year 2007. Technology and communications were other sectors which saw increased turnover.