Pakistan stock market benchmark index performance during last 30 years

The benchmark index of Pakistan Stock Exchange, KSE-100 index is celebrating its 30 years of existence. The Index is total return market capitalization based, which was created in 1991 with a base value of 1,000 points. Following international best practices the benchmark Index calculation methodology was changed from full market capitalization to free float market capitalization in October 2012. Some other indices have been created since 1991 that include KSE-30, All Share and KMI-30, but KSE-100 index still remains most followed and most reported indicator of stock price movements in Pakistan.

The Index comprises of 100 companies selected on the basis of the sector representation and highest free-float capitalization. The index covers 70-80% of the total free-float capitalization of the companies listed on the exchange.

One company with largest market capitalization from each of the 36 sectors is selected from all listed sectors (except open-end mutual funds). The remaining 65 companies are selected with largest market capitalization in descending order.

The KSE-100 index is a total return index that is adjusted for dividend, bonus and rights.

Compounded Annual Growth Rate (CAGR) of KSE-100 Index has been 14% during last-30 years. It means that if one had invested Rs1,000 in 1991 at the Pakistan bourse, it would have increased close to Rs47,000  by FY21, a gain of around 47 times.

The investment would have grown at a 14% each year in last 30 years, assuming that the portfolio had mirrored the benchmark KSE-100 Index.

Based on another methodology, average market return in last 30-years for KSE-100 index stood at 19%. This is based on calculation that all shares are sold at year end and re-bought at start of each year.

Similarly, a US$1,000 investment in KSE-100 index would have increased by more than 7 times since 1991 to reach US$7,273, despite currency depreciation.

The decade of 1990s was not good for investors as the KSE 100 index generated a CAGR of only 3%. In the following 10 years, the gain was far superior at 25%. Return during the last decade (2011-2021), was in line with 30-year return of 14%.

For Day Traders market has not been very attractive considering that only 54% of the trading sessions closed positively, while 46% of the days recorded a decline. Similarly, the Monthly analysis suggests that during 58% of the months Index closing was in positive zone whereas 42% of the times it was in negative.

On a yearly basis, Index performance remained very good. Out of 30 years, 21 times index gained which is 70% whereas 9 times it closed in red, which makes 30%.

Interestingly, no single 6 years rolling returns were without any gains. This means that since 1991, if one had invested money for a minimum of 6-years, he/she would have never lost money.

The longest period of non-stop annual gains was from FY10 to FY17 when Index gained 550% in 8 years. The longest time of bearish spell was seen in FY18 and FY19 when Index came down by 27% in 2-years.

The best year for KSE-100 index was FY03 when market returned 92% whereas FY98 was the worst year when index declined by 44%.

Pakistan’s economic growth has also been one of the key driving force behind market performance. In the last 30-years, Pakistan’s GDP growth has averaged at 4.2%.

During the last 30-years, investors have seen market performance taking a hit during periods of low economic growth.

Periods including FY97 and FY98, FY08 and FY09, and FY19 witnessed decline in benchmark KSE-100 index as GDP growth fell below 4% during these periods.

Other factors including interest rates, stock market reforms, currency movement, and liquidity have also played their part in the overall market performance.

July 2021 another lackluster month                                                

July 2021, was the second consecutive month of lackluster performance at Pakistan Stock Exchange, benchmark index closed at 47,055 points, down 0.6%MoM. Investors remained on the sidelines eyeing: 1) rising COVID cases in the country with the epicenter being Karachi, while country wide positivity rate crossed 8% mark, Karachi recorded above 20% positivity rate, 2) growing political uncertainty in Afghanistan, and 3) macro risks lacking clarity on the course of measures under IMF program. Average daily trading volume slipped to 460 million shares as compared to 913 million shares in June 2021.

While all major sectors remained flattish, outperformance was seen in secondary boards, with Modarabas gaining +65.9%MoM with most companies announcing plans to venture into real estates, followed by Textile weavers  with +9.8%MoM attributable to turnaround in earnings outlook. The laggard was Cable & Electrical goods segment (down 6.1%MoM). Overall CYTD return hovered at 7.5%.

Flow wise, excluding strategic sale in BYCO amounting to US$27.4 million, foreign selling was recorded at US$1.2 million during the month, with positions switched from Food and Personal Care segment (outflow: US$2.4 million) and Commercial Banks (outflow: US$1.8 million), to Cements (inflow: US$2.4 million), and Oil & Gas sector (inflow: US$3.6 million). Locals, apart from brokers that squared positions worth US$6.95 million, absorbed foreign selling, with major contributions this time coming from Insurance and Companies with cumulative net buy of US$16.0 million followed by Mutual Funds (net buy: US$6.9 million), and Banks (net buy: US$6.1 million). Mild contribution from Individuals was witnessed with a net buy of US$1.6 million as against average monthly net inflow of US$25.0 million CYTD.

Market direction in the near term is likely to remain dependent on COVID trend, demonstration by Pakistan authorities on achieving targets mandated under IMF program before September 2021 review (FBR achieved tax collection of Rs413 billion, 21% above the target), and external account numbers appearing encouraging (CA expected to normalize in July 2021). On this note, Inflation continues to decelerate with July 2021 inflation declining to 8.4%YoY, from 9.7% a month ago. Additionally, earnings season is likely to pick up pace where positive surprises cannot be ruled out in upstream textile players, and midstream and downstream oil players, bring interest in these sectors in the near term. In the medium run, analysts believe Pakistan macro story is still intact and hence any short term corrections should be taken as an opportunity to accumulate with their preference being thematic plays including Cements, Steel and Construction-Allied. They also like Textiles due to the recent currency devaluation and strong exports outlook.

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