Annual Report 2012 - Lahore Stock Exchange

Directors’ ReportDIRECTORS’ REPORT2012The Directors have the pleasure in presenting their reporttogether with the audited financial statements for thefinancial year ended June 30, 2012. The report will coverthe significant activities and the new initiativesundertaken by the Exchange during the FY 2011-2012 aswell as up to the date of this report.ECONOMIC OVERVIEWThe economy of Pakistan despite facing numerousproblems and challenges showed signs of modestrecovery. The real GDP growth stood at 3.7% as comparedto 3.0% in the previous fiscal year. GDP growth wascontributed by key sectors namely Agriculture (21.1%),Manufacturing (18.6%), Commodity Producing Sector(6.7%) and Services Sector (53.5%). The manufacturingsector was challenged by perpetual energy crisis acrossthe country and rising cost of fuel and transportation.During the period under review, the SBP followed a tightmonetary policy, the interest rates and the banking spreadremained high providing an incentive to the investors toput their savings into high interest earning alternativesleading to crowding out effect on the private sector.However, during the first half of the fiscal year 2011-12the SBP adopted a policy of quantitative easing andlowered the discount rate by a cumulative 200 bps pointsto 12 percent. This had a positive impact on the listedcorporate sector.On the negative side, the trade deficit increased to US$ 21billion as compared to US$ 15 billion in the previous yearrecording a current account deficit of US$ 4.5 billion ascompared to surplus of 0.2 billion in previous year. Fiscaldeficit was higher mainly due to higher than budgetedsubsidies on power and fertilizers. Foreign investmentwas dismal with a net inflow of US$ 742 million for FDI22and portfolio. Higher international oil prices, lowercotton prices and excessive subsidies incurred by theGovernment on Power and Fertilizers were major factorsfor negatives in Pakistan economy. Dwindling reservescoupled with import payments especially of petroleum,debt servicing and a lack of external aid continued toincrease pressure on the local currency.PERFORMANCE OF THE MARKETThe performance of stock market presented a mixed trendduring the financial year under review. The marketremained range bound during the first half with apredominantly declining trend. The obscure movementof the stock market statistics was consequent to variouschallenges faced by the country including escalatingpolitical upheaval, uncertainty due to worsening law andorder situation as well as rumors on the economic frontpertaining to reduction in military and civil aid frominternational donors, the Pak rupee depreciation andincreasing fiscal deficit of the government. However, themarket resumed its momentum during the 3rd quarterowing to certain encouraging measures like considerablereduction in discount rate by the SBP and increase inforeign exchange reserves. Further, the market sentimentwas boosted by the promulgation of the Capital Gain TaxOrdinance under which NCCPL was appointed as awithholding agent to compute, determine, collect anddeposit the CGT on trading in listed securities on behalf ofthe investors.The trading volumes at LSE continued to decline duringthe outgoing year and LSE registered another dismal yearas a trading venue due to the tendency of the brokers topass on the trading of their clients to KSE through theirKSE counterparts. Also, LSE has a handful of memberswho are active and a bulk of LSE members are stillinactive. It may be noted that out of 152 members, only 85LAHORE STOCK EXCHANGE