PAKISTAN MAJOR STOCK MARKET AS INDICATED BY KSE-30 AND KSE-100 INDICES HAS SEEN A SUBSTANTIAL RISE IN THE PAST

YEAR. EXPLAIN THE CAUSE(S) OF THIS SURGE. SPECIFICALLY ADDRESS REASONS FOR THE INFLUX OF NEW CAPITAL VERSUS THE UNDERLYING PERFORMANCE OF THE SECURITIES. IS THIS REPRESENTATIVE OF SOUND FINANCIAL REFORMS? IS THE IMPACT LASTING?
KSE 100 index as seen approx. 37.6% increase in the last year (graph in appendix). There are several factors which directly and indirectly affect KSE 100 and KSE 30 indexes in Pakistan. Amount of billionaires are growing day by day and many of them owe their earnings to stock market. According to some stock brokers the major reason for stock boom is the low valuation of equities and double digit dividend growth. The major boost to equities was provided by declining interest rates, resolution of capital gains tax related issues, improved foreign portfolio inflows, rising consumerism and good corporate earnings Mohammad Sohail (CEO at brokerage Topline Securities)

Another major factor which highly affects the stock prices and KSE index is Interest rate (cost of borrowing). The monetary policy has relieved the interest rates cuts (graph in index). The appetite of companies increased due to lower interest rate. Due to this many companies, especially those dealing with consumer goods started keeping more cash. Other factors include; 1. Strong company earnings and increase in share price day by day 2. High dividend yield 3. Improvement in sectors (like telecom, textile and cements ) 4. Tax amnesty scheme( via which people convert their black money to white money) 5. Foreign inflow (foreigners bought shares of US$117 million and also sold US $ 89 million at KSE (net buying of YS$28 million).

6. After the crash in 2005 & 2007 smaller investors cashed out. Hence due to lesser volume of shares an overall rising is seen. (Lesser shares==> smaller choices available for consumer, thus investment in almost all companies is present==> over all rising is seen as a result) 7. New regulations enforced a FLOOR & CEILING of 5 % per day. This limit also increased diverse investment. Because a single company cannot go beyond 5% thus investors invest in other companies too and a collective growth is visible. 8. Institutional Buying has increased. Banks are big player now days. Companies also buy other companies share in bulk in order to diversify their portfolio, secure their investment or increase their revenue 9. "Future Trades" also available now. Companies can now have two type of share. Current & Future. This results in more shares per company and hence results in rising of Index (50 companies in Pakistan offer Future shares) There were certain events, policies enforced by the Govt. of Pakistan which tended to shift index upward. Few events like these are 1. Corporatization, demutualization and integration Act, 2012 on May 8. And it lay down a strong broker organization to end after having almost 60 year control of the market. 2. The Govt. imposition of CGT in FY11 is another major factor. The average daily volumes have tapered to 82mn shares when compared with Dec08-FY10 of 161mn shares. 3. Concessions on CGT gave a confidence to stronger domestic retail participation coupled with improved FPI prospects. This lead to enhanced price discovery.is approx. 19% uplift. In addition, better market liquidity ought to lessen the liquidity risk premium and this directed to a firmness of valuation discount.

4. Proposals regarding capital markets were also approved. (Relaxation on the cash margin requirements especially with respect to equity financing products (MTS) (25% cash to 15%) and only 10% eligible securities and allowing individuals to participate as financiers. 5. Stock brokers have now excess capacity to execute the business. Improved liquidity for the market has been created in a form of allowing clearing of 50 million/ member of KSE against any collateral of 10 million from the clearing house protection fund. 6. GoP acceptance of SECP proposal and KSE in connection with the revival of the local equity markets. Finance minister of Pakistan; Mr abdul Hafiz Sheikh declares that on 12 Jan, 12 that a) Following proposals are accepted b) no probe into source of income until Jun'14, c) Withholding tax on brokers commission to be eliminated d) CGT rates frozen until Jun'14 e) At-source deduction of CGT by NCCPL (act as a withholding agent). These polices came into effect from April 2012 and drove valuation relating with consistent high volumes. Better volumes will lead to increase price discovery and thus attracting more equities in Pakistan. Above mentioned proposals and policies will help increase the volumes and activities. This has not only attracted few foreign investors but also previous investors who sidelined from the stock market. This resulted in the growth of KSE 100 and 30 which was previously squeezed out and was facing a slow almost dead activity. News also plays an important role in the index movement. Such news is discussed in the appendix. News fundamentally motivates investors to invest in certain factors which increased the volume leaded to increase in index rises during the past last year in Pakistan.

An extract of a recent Business week story titled "Pakistan, Land of Entrepreneurs ", captured the ground reality of Pakistan's business landscape that is masked by the continuing reports of doom and gloom making up the standard mass media narrative about Pakistan: "Arif Habib, who started as a stockbroker more than four decades ago, has expanded his Arif Habib Group into a 13-company business that has invested $2 billion in financial services, cement, fertilizer, and steel factories since 2004. His group and a clutch of others have become conglomerates of a kind that went out of fashion in the West but seem suited to the often chaotic conditions in Pakistan. Engro, a maker of fertilizer, has moved into packaged foods and coal mining. Billionaire Mian Muhammad Mansha, one of Pakistans richest men, is importing 2,500 milk cows from Australia to start a dairy business after running MCB Bank, Nishat Mills, and D.G. Khan Cement.