Introduction

The Pakistan Stock Exchange is a stock exchange in Pakistan with trading floors

in Karachi, Islamabad and Lahore. PSX was reclassified as a MSCI Emerging Market in May
2017, while the FTSE classifies PSX as a Secondary Emerging Market.
The PSX was established on 11 January 2016 after the merger of
the Karachi, Lahore and Islamabad stock exchanges, ary 2020 there were about 540 companies
listed in PSX and the total market capitalization was 8,398,456.068 PKR ($52 billion USD) in
January 2021.
The investors on the exchanges include 1,886 foreign institutional investors and 883 domestic
institutional investors along with about 0.22 million retail investors. There are also about 400
brokerage houses which are members of the PSX as well as 21 asset management
companies. One of the PSX's precursor stock exchanges, the Karachi Stock Exchange, was listed
among the world's best performing frontier stock markets: between 2009 and 2015 it delivered
26% a year. In December 2016, PSX sold 40% strategic shares to a Chinese consortium for
US$85 million
Company Profile
Pakistan Stock Exchange was established on September 18, 1947 and was formally incorporated
on March 10, 1949 under the name of ‘Karachi Stock Exchange’, as a Company limited by
Guarantee. In October 1970, a second stock exchange was established in Lahore to meet the
stock trading needs of the provincial metropolis. In October 1989, Islamabad Stock Exchange
was established to cater to the investors of the northern parts of the country. Because the three
exchanges had separate management, trading interfaces, indices, and had no mutualized
structure, therefore the Stock Exchanges (Corporatization, Demutualization and Integration) Act,
2012 was promulgated by the Government of Pakistan which ultimately resulted in the three
exchanges integrating their operations effective January 11, 2016 under the new name ‘Pakistan
Stock Exchange Limited’ (PSX).

Vision
A world class exchange for Pakistan

Mission
PSX contributes to the economic development of Pakistan by providing a fair, transparent, and
efficient marketplace to facilitate capital formation for the benefit of investors, issuers and all
stakeholders.

Size of Market
PSX has made significant strides in its history, having a small presence of 5 listed companies
initially with a total paid-up capital of Rs 37 Mn. In 1960 there were 81 companies with a market
capitalization of Rs 1.8 Bn whereas now there are 546* companies listed in the bourse with a
market capitalization of Rs 7.692* Tn. The listed companies are distributed amongst 35 sectors/
groups of industries. As of Dec 31, 2018
Merger
PSX was launched on 11 January 2016. Prior to the formal launch, the Karachi Stock Exchange
held a two-day pre-production mock trading session for all certificate holders of the three
bourses. The integration is expected to help reduce market fragmentation and create a strong case
for attracting strategic partnerships necessary for providing technological expertise and
assistance. The integration of the three exchanges has completed the second phase of the Stock
Exchanges Demutualization and Integration Act 2012, passed by a joint session of parliament.

Current Structure of Pakistan FX Market

Interbank Market
All approved FX transactions that take place within the banking system are conducted
via the interbank market. Major inflows include export proceeds, official home remittances,
foreign private investment, funds transferred from abroad through FCAs, and FX purchases from
exchange companies. Major outflows include import payments, profit repatriation by foreign
firms, disinvestments, and funds transferred abroad through FCAs. The demand for and supply of
FX in the interbank market determines the interbank or official exchange rate. It is important to
point out here that government-related transactions do not affect the interbank market because they
are conducted directly using SBP reserves. Therefore, loans from international financial institutions
(such as the International Monetary Fund or the World Bank), bilateral flows (e.g., from Saudi
Arabia and China), coalition support funds, and privatization proceeds (such as from the Pakistan
Telecommunication Company Ltd and the Oil and Gas Development Company Ltd) affect only
SBP reserves and do not enter the interbank market. Similarly, the interbank market remains
immune to official FX outflows such as debt repayments.
Kerb Market
The kerb market comprises mainly exchange companies (moneychangers). Major inflows
include workers’ remittances and dollar purchases from the public. Major outflows include hard
currency bought for medical, travel, and education purposes, either in the form of hard cash or
telegraphic transfers and demand drafts.

Broadly speaking, the public deals with exchange companies, rather than banks, when selling or
buying FX. For instance, an individual who wishes to purchase US dollars in cash to pay his or her
child’s college fee or a medical bill or for travel expenses abroad will approach an exchange
company. Similarly, Pakistanis returning from abroad with US dollars in cash will sell these to
exchange companies for Pakistani rupees. The open market exchange rate is determined by the
demand for and supply of dollars in the kerb market. The spread between the interbank and open
market exchange rates is typically known as the kerb premium.

Hawala Brokers
Hawala is the informal FX market based on the network of hawala brokers located in the Middle
East, the Indian Subcontinent, Africa, and even the US and UK. Since this system is based solely
on mutual trust and social networks, it is not regulated and is conducted by a large number of
brokers. There is no physical movement of currency on spot, as claims are settled after netting out
opposing transactions. Even with the existence of exchange companies, the hawala network
remains operational in Pakistan.
What is an Index
A stock index, or stock market index, is an index that measures a stock market, or a subset of the
stock market, that helps investors compare current price levels with past prices to calculate
market performance. It is computed from the prices of selected stocks.

An index is an indicator or measure of something. In finance, it typically refers to a statistical

measure of change in a securities market. In the case of financial markets, stock and
bond market indexes consist of a hypothetical portfolio of securities representing a
particular market or a segment of it.

Indices Listed on PSX:

There are eleven Indices listed on PSX which are:

 KSE 100 Index

 KSE All Share Index
 KSE 30 Index
 PSX-KMI All Shares Index
 KMI 30 Index
 BKTI (Tradable Banks Index)
 OGTI (Tradable Oil & Gas Index)
 NITPG Index
  UPP9 Index
 MZNPI Index
 NBPGI Index
How PSX Works
The stock market is a place where companies list themselves to make their shares available to a
broad range of investors to purchase these shares. You, as an investor, have the option to choose
from multiple stocks of different companies to buy in order to build your investment portfolio. The
share prices of the shares listed on the Stock Exchange fluctuate according to the buy & sell
transactions taking place.

What Can the Stock Market Do for You?

By purchasing shares of the selected companies, you build your portfolio of stock investments.
This portfolio is formed and selected on the basis of:

 Company.
 Sector.
 Returns you are expecting.
 Risk capacity. (How much can you invest in spite of market volatility?)
 Risk tolerance. (How much market downturn and volatility can you sustain?)
 Payouts (dividends or bonus shares).
 Any other considerations you may have according to your stock investment preferences.
By purchasing the shares of a company, you become a shareholder of that company and
are entitled to dividends and other payouts such as bonus or right shares issued by the
said company, along with the advantage you can have of capital gain from increase in
price of the shares.

If you have decided to invest in the Stock Market, then it is a decision well worth taking.
Consider this that Pakistan Stock Exchange has performed better over the last several years,
above and beyond other investment vehicles available in the country. Returns earned from the
Stock Exchange as compared to other asset classes over the last ten years, Jan 2009 to Dec 2018
is illustrated below:

KSE 100 Index stocks provided compounded annual returns of 15.13%* over the last 15 years
Dec 2003 to Dec 2018. These figures compare fairly well with other avenues of investment in
Pakistan. Given the fact that the Pakistan Stock Exchange has given good returns historically, it
is safe to say that investment in stocks in Pakistan Stock Exchange may well be worthwhile for
the long run

Where to Invest:

It is always a good idea to invest your money where you get competitive returns. The stock
market is one such avenue where there is good upside potential, historically, and where the
returns have been higher than those from other investment avenues. Investing for the long term is
a better option than investing for the short term in the stock market. It will not only allow you to
compound your earnings but will also enable you to earn dividends which can be re-invested in
the market, thereby increasing your earnings. So, you must focus on It is always a good idea to
invest your compounding your earnings, reinvesting your dividends and achieving capital gain.