Market Indices & Stock Exchange

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Market Indices&

Stock Exchange

Presented By:Mian Shaheryar Ali ShahSyed Nasr Uddin



Stock Market Indices & Averages:

lndices are used to give information about the price movements of securities in the stock markets.

Stock Market Indices are meant to capture the overall behavior of equity market.

A stock market index is created by selecting a group of stocks that arerepresentatives of the whole market or a specified sector or segment inthe market. An Index is calculated with reference to a base period and a

base index value.The basic idea of an index is that one is able to get an idea or a broadpicture about how the market or a particular segment has performed by looking at the index rather entering the complicated process of lookingat each scrip.



Stock Market Indices & Averages: (Cont.)There are currently thousands of indices calculated by various information providers. Best known are:

Dow Jones & CoStandard & Poor¶s

Morgan Stanley Capital Markets (MSCI)

Reasons of maintaining share indices :

1. They provide a historical comparison of returns onmoney invested in the stock market against otherforms of investments.

2. They can be used as a standard against which tocompare the performance of an equity fund.

3. It is an indicator of the performance of the overalleconomy.

4. Stock indices reflect highly uptodate information.



Typ es of Stock Market Indices:

An index may be classified according to the method used to determine itsprice,

Equ all y Weighted Index:Example is Rydex S&P Equal Weight Exchange Traded Fund

Market Ca p italization Weighted Index:Example are NASDAQ Composite, NASDAQ-100, NYSE Composite,

FTSE-100

P rice Weighted Index:Example are Dow Jones Industrial Average, Amex Major MarketIndex, and the NYSE ARCA Tech 100 Index



Equ al Weighted Index:

An equally weighted index weights each stock equally regardless of its marketcapitalization or economic size (sales, earnings, book value). Due to daily price

movements of the stocks within the index, the portfolio must be constantly re- balanced to keep the positions in each stock equal to each other.



Ca p italization-Weighted Index:

In a capitalization-weighted index, each component stock contributes itsmarket value to determine the overall index value and, therefore, stocks with greater market value are given more weight in this type of index.

The market value of each stock can be calculated by multiplying the stock price with the total number of shares outstanding.

The sum of the market value of all the component stocks is then divided by

a divisor to obtain the final index value.This divisor is an arbitrary number that is first defined when the index isfirst published.

Examples: NASDAQ Composite, NASDAQ-100, NYSE Composite, FTSE-

100



K SE -100 Index:

The KSE-100 Index was introduced in Nov 1991 with base vale of 1,000 points.

The Index comprises of 100 companies selected on the basis of sectorrepresentation and highest market capitalization.

The primary objective of the KSE 100 index is to have a benchmark by whichthe stock price performance can be compared to over a period of time.

1. 32 companies are selected from each sector on the basis of largest marketcapitalization.

2. 68 companies are selected on the basis of largest market capitalization indescending order.

3. This is a total return index i.e. dividend, bonus and rights are adjusted.



K SE -100 Index: (Cont.)

Stock Selection R u le:

Rule#1: Largest market capitalization in each of the 32 KSE sectors excludingOpen-end Mutual Fund Sector.

Rule#2: The remaining 68 index places are taken up by the largest marketcapitalization companies in descending order.

Rule#3: Company which is on the Defaulters¶ Counter and/or its trading issuspended, declare Non-Tradable (i.e. NT) in preceding 6 monthsfrom the date of recomposition shall not be considered in therecomposition of KSE-100 Index.




Recomposition of the KSE-100 Index:

1. Sector Rulesa. Time-based Rule b. Value-based Rule

2. Market Capitalization Rules

a. Time-based Rule

New Divisor = Revised Market Cap. x 1000Index (Day 2)



K SE -30 Index:

KSE-30 Index is calculated using the ³Free-Float Market Capitalization´methodology.

The index at any point of time reflects the free-float market value of 30companies in relation to the base period.



K arachi Stock E xchange:

Established on September 18, 1947.Incorporated March 10, 1949.Premier Stock Exchange of the country.Started with 5 companies with a paid-upcapital of Rs. 37 million.Trading was done through open-out-crysystem.The first index was the KSE 50 index.



K arachi Stock E xchange:

Exchange owned by 200 members/brokers.

1850 trading terminals exist at broker end.651 companies listed.4 indices (KSE 100, KSE 30, KSE All ShareIndex, KMI 30).Trading currently through an ElectronicTrading System.Market Capitalization*.US $ 26.48 billion.Listed Capital: US $ 9.65 billion.KSE 100 index showed a return of 40.19% in 2007.



L ahore Stock E xchange:

The Lahore Stock Exchange (Guarantee) Limitedcame into existence in October 1970, under the

Securities and Exchange Ordinance of 1969 by the Government of Pakistan in response to theneeds of the provincial metropolis of theprovince of Punjab.

Member/Broker: 152 (54 are individual and81 are corporate members.)Listed Companies: 519companiesIndexes: LSE 25



Islamabad Stock E xchange:

Islamabad Stock Exchange or ISE is oneand youngest of the three stock exchanges of

Pakistan and is located in the capital of Islamabad.

Islamabad stock exchange (ISE) was incorporated as a guarantee limited company on 25 October 1989.

Member/Broker: 120 (26 are individual and94 are corporate members.)Listed Companies: 261 companiesIndexes: ISE-10, ISE Network Index



200

2Best E xchange of the World:

Karachi Stock Exchange is the biggest and most liquid exchange in Pakistan.It has been declared as the ³Best Performing Stock Market of the World for the year 2002´ by Bu siness Week and USA T oda y .

As at March 15, 2007, 754 companies were listed with the market. capitalization of Rs. 3,200.182 billion (US $ 52.00) having listed capital of Rs. 495.968 billion (US $ 8.27 billion). The KSE 100Index closed at 11,310 on March 15,2007.

F or 4 consec u tive y ears K SE has remained one of the Best P erforming Markets of the World.

T he main reason for good p erformance was,

F oreign b u y ing interest has been ver y active on the K SE . According to State Bank estimates, foreign investment in ca p ital markets totalabo u t $ 5 2 3 M.E xp ectations of significant increase in cor p orate p rofitabilit y .Increase in market li qu idit y .Decline in interest rates.Ho p es of earl y p rivatizations of larger p rofitable p u blic sector com p anies e.g.P SO, OGDC, Steel Mill etc.



K SE in FY 03:



K SE -100 Index T rend Anal y sis:



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