47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Chapter 6Capital MarketsIntroductionThe capital market, like the money market plays asignificant role in the national economy. Adeveloped, dynamic and vibrant capital market cancontribute significantly in the speedy economicgrowth and development. It mobilizes funds frompeople for further investments in the productivechannels of an economy, activating idle monetaryresources and puts them in proper investments.Capital market also helps in capital formation.Capital formation is net addition to the existingstock of capital in the economy. Throughmobilization of ideal resources it generatessavings; the mobilized savings are made availableto various segments such as agriculture, industry,etc. This helps in increasing capital formation. Itraises resources for longer periods of time. Thus itprovides an investment avenue for people whowish to invest resources for a longer period oftime. It provides suitable interest rate return also toinvestors. Instruments such as bonds, equities,units of mutual funds, insurance policies, etc.definitely provide diverse investment avenues forthe public.The capital market enhances production andproductivity in the national economy. As it makesfunds available for long periods of time, thefinancial requirements of business houses are metby the capital market. It helps in research anddevelopment. This helps in increasing productionand productivity in the economy by generation ofemployment and development of infrastructure.The lack of an advanced and vibrant capital marketcan lead to underutilization of financial resources.The developed capital market also provides accessto foreign capital for domestic industry. Thus thecapital market definitely plays a constructive rolein the overall development of an economy.Capital markets consist mainly of Stock (equity)and Debt markets. The capital market provides anavenue for raising the long-term financing needs ofbusiness through equity and long term debt byattracting investors with a long term investmenthorizon.Pakistan Equity MarketsThe Karachi Stock Exchange (KSE) is the biggestand most liquid exchange in Pakistan with anaverage daily turnover of 254 million shares andmarket capitalization of US $ 41.0 billion as of thefirst week of May, 2012. The internationalmagazine 'Business Week' declared the KSE as thebest performing world stock market in 2002. Sincethen, international investors have given dueconsiderations to the KSE in making decisionsregarding foreign investment in equity markets.Since 1991, foreign investors have an equalopportunity together with local investors to operatein the secondary capital market on the KarachiStock Exchange. The establishment of the newpolicy for foreign investors and the privatizationinitiated in Pakistan has accelerated thedevelopment of the KSE, which had 591companies listed in 2012.The Karachi Stock Exchange trades the KSE-100Index. It is a highly-diversified index of 100largest capitalization companies’ stocks from allsectors of Pakistan’s economy. A constantlyrevised index is a good indicator of the overallexchange performance over a period of time. InMay, 2012, 92 percent of the KSE total market81