Friday, December 31, 2010

Comparison of Karachi Stock Exchnage Indices

Pakistani stock market comprises of 3 stock markets namely; Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE), and Islamabad Stock Exchange (ISE). Karachi Stock market is the leading stock exchange in Pakistan. It comprises of 4 indices, i.e. All Share index, KSE-100 index, KSE-30 index, and KMI (KSE Meezan Index)-30 index.

The KSE-100 was launched in 1991 with a base of 10,000 points. It is an index acting as benchmark to compare prices on the Karachi Stock Exchange over a period of time. The index comprises 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on stock exchange. Out of the 35 sectors, 34 companies are selected i.e. one company from each sector (excluding Open-End Mutual Fund Sector) on the basis of the largest market capitalization and the remaining 66 companies are selected on the basis of largest market capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted. Today index stood around 10600 points.

The Karachi Stock Exchange is launched KSE-30 index with base point of 10,000 points; the index was implemented from Friday, September 01, 2006. The objective of KSE-30 is to have a benchmark by which the stock performance can be compared over a period of time. Particularly, KSE-30 was designed to give investors with clear picture of how large companies are performing.

The KSE-30 performs on the free floating methodology. This means proportion of total shares issued by a company that are readily available for trading at Stock Exchange. It excludes the shares held by controlling directors/sponsors/promoters, government and other locked-in shares not available for trading in the normal course. The closing points were around 10300.

The Karachi Stock Exchange with the collaboration of Al Meezan Investments Management Limited launched the Pakistan’s first Islamic index, named KSE Meezan Index or KMI on September 01, 2008, Ramadan 01, 1429 Hijra.
The KMI consists of 30 companies which qualify the Shariah screening criteria. The objective of KMI-30 is to serve as a gauge for measuring the performance of Shariah Compliant Equity Investment, and it also provides investors with a suitable benchmark for comparing returns on their Shariah Compliant Investments.
Following is the criteria of KMI-30:
o The business of company should be Halal. Investment in banks, insurance companies, leasing companies, and other non-Shariah compliant is not allowed.
o Total interest bearing debt should be less than 40% of total assets invested in the business.
o Non-Shariah compliant investment must be less than 33% of total assets invested in the company, which includes investment in mutual funds, conventional money market instruments, bonds, PIBs, FIBs, CoIs, CoDs, TFCs, T-bills, and all interest based placements and all interest based loans and advances, etc.
o Non-Shariah compliant income must be less than 5% of total revenue.
o Illiquid assets must be greater than 20% of total assets employed in the business, which includes property, plant and equipment, building, furniture, intangible assets, etc.
o Market price per should be greater than Net Liquid assets per share.

Since very first days the KMI-30 is higher than KSE-100 andKSE-30. In the first month since inception KMI-30 was more than 1000 points higher than KSE-30 and 2000 points above than KSE-100. In the end of September 2008, KMI-30 was at 11224.87, KSE-30 was at 10064 and KSE-100 was at 9179. Today KMI-30 stands at 16791.09 whereas KSE-30 stands at 10250. This show the confidence investors have vested in KSE Meezan Index. In 2009 KSE Meezan Index has gained the top slot in the worldwide indices by posting 107.4 percent dollar based returns, while KSE-100 index secured sixth position with 60 percent dollar based returns.

If we depict the scenario of return of indices, it’s like that. The return on KMI-30 is higher than the both of the indices in Karachi Stock Market i.e. KSE-30 and KSE-100. The investors who invest in KMI got the return of more than 5%, whereas the return on KSE-30 and KSE-100 is -3% and 0.35% respectively.

If we conclude all this discussion, the gist is that investing in Islamic mode of shares is very lucrative indeed from investors’ perspective.