According to the Economic Survey of Pakistan FY2022, the capital market is an organized market where both individuals and business entities can trade various financial instruments such as bonds, stocks, government securities etc. Capital market is a key source of funds for an entity whose securities are permitted by a corporate regulatory authority to be traded, since it can readily sell its debt obligations and equity to investors. It is also said that capital market offers a variety of financial instruments that enable economic agents to pool, price and exchange risk. Through assets with attractive yields, liquidity and risk characteristics, it encourages savings in the financial form.
Experts recorded that a well-developed capital market creates a sustainable low-cost distribution mechanism for multiple financial products and services which enhance efficient financial intermediation. It increases mobilization of savings and, therefore, improves efficiency, volume of investments and economic development. Capital market can create greater financial inclusion by introducing new products and services tailored to suit investors’ preferences for risk and return as well as borrowers’ project needs and risk appetite.
Considering its role in the economy, the capital market has an important place, through its specific mechanisms, succeeding to give its contribution to the economic development of the country.
| Pakistan Stock Exchange | |||||
|---|---|---|---|---|---|
| Details | 2018 | 2019 | 2020 | 2021 | 2022 (Till 31st March 2022) |
| Total No. of Listed Companies | 546 | 534 | 531 | 532 | 532 |
| Total Listed Capital – Rs in billion | 1,322.74 | 1,386.59 | 1,421.09 | 1,442.64 | 1,502.13 |
| Total Market Capitalization – Rs in billion | 7,692.78 | 7,811.81 | 8,035.36 | 8,297.31 | 7,582.98 |
| New Companies Listed during the year | 3 | 1 | 3 | 5 | 5 |
| Average Daily Shares Volume – (Shares in Mn) (YTD) | 194.03 | 163.98 | 323.51 | 527.50 | 305.19 |
| Total Volume Traded – (Rs in Mn) (YTD) | 62,324 | 57,645 | 108,426 | 131,354 | 57,682 |
Equity market
As per the government officials equity market mobilizes financial resources and connecting savers and investors. It also plays a key role in linking real and monetary sectors of the economy. Pakistan’s stock market’s performance has posted a boom-and-bust situation during FY2022 because of geo-political tension especially Russian-Ukraine conflict and domestic political uncertainty. During July 2021 to March 2022, the benchmark KSE-100 index fell from 47,356 points to 44,929 points. During this period, the index closed at its highest point of 48,112 points on August 23, 2021. As of March 31, 2022, number of listed companies stood at 532, with total market capitalization of Rs 7,583 billion.
The turnover in shares reached its peak in September 2021, indicating that investors were actively investing in the market. The experts also recorded that the major development of this year in the equity market is the issuance of Initial Public Offerings (IPOs). During July-March FY2022, 5 companies issued shares through IPOs on the main board of Pakistan Stock Exchange (PSX), while 2 companies were listed on the newly introduced Growth Enterprise Market (GEM) Board. The total number of companies listed in PSX till March 2022 stood at 532. Total listed capital with PSX increased from Rs 1,442.64 billion in FY2021 to Rs 1,502.13 billion during the first nine months of FY2022. Five new companies were listed with the PSX during July-March 2022 as compared to five companies in the fiscal year 2020-21.
Debt markets
Debt market is the market where investors trade debt instruments, mostly in the form of bonds. A well-developed corporate bond market is essential for the growth of the economy, as it provides an additional avenue to government and the corporate sector to raise funds for meeting their financial needs. During July-March FY2022, 32 debt securities were reported. As of March 31, 2022, 102 corporate debt securities remain outstanding, amounting to Rs 749.8 billion.
Commodity futures market
It is also sad that Pakistan Mercantile Exchange Limited (PMEX) offers diverse range of futures contracts based on different commodities, including gold, silver, crude oil, currency pairs, as well as local agricultural products including cotton, wheat, rice and spices. During July-March FY2022, 2.31 million lots of various commodities futures contracts including gold, crude oil and US equity indices worth Rs 2.65 trillion were traded on PMEX.
Non-banking finance companies
Non-Bank Finance Companies (NBFCs) are the entities that provide services similar to banking and financial services, but do not hold a banking license. In Mutual Funds, as of December 31, 2021, assets under management of mutual funds reached at Rs 1,191.6 billion. Money market funds dominated the industry with the largest share i.e., 49 percent of the mutual fund industry, followed by income funds comprising of 21 percent and equity funds having industry share of 20 percent, respectively.
Islamic finance sector
During July-March FY2022, SECP has issued one certificate of Shariah compliant company and twenty certificates of Shariah compliant securities in terms of the Shariah Governance Regulations, 2018, for the development of the Islamic capital market. During the period under review, SECP has issued certificates of Shariah compliance for the Shariah compliant securities/sukuk worth Rs 92.5 billion.
Conclusion
No doubt, the reforms and development activities introduced by the SECP will not only help the capital markets to regain its momentum but also neutralize the associated risks. However, the performance of Pakistan’s capital market will depend on the domestic as well as international economic conditions in the future. In last I would like to mention here, the Government of Pakistan must notice the significance of the capital market in the national economy and to make efforts for ensuring the necessary framework for the normal functioning of its specific mechanisms.