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KARACHI: Pakistan Stock Exchange’s most followed KSE-100 Index posted average annual returns of 14 percent in last 30 years since its creation.

The KSE-100 Index is celebrating its 30 years of existence. The KSE-100 Index is a total return market capitalization based Index, which was created in 1991 with a base value of 1,000 points.

Following international best practices the KSE-100 Index calculation methodology was changed from full market capitalization to free float market capitalization in October 2012. Though many other indices have been created since 1991 like KSE-30, All Share, KMI-30 etc. 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 captures 70-80 percent 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.

The compounded annual growth rate (CAGR) of KSE-100 Index was at 14 percent during last-30 years, Umair Naseer at Topline Securities said. It means that if an investment of Rs1000 was made in 1991 at the Pakistan bourse, it would have increased to close to 47,000 by FY21, a gain of around 47 times, he said. So the investment would have grown at a rate of 14 percent each year in last 30 years, assuming that the portfolio had mirrored the KSE-100 Index, he added.

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

“Similarly, a $1,000 investment in KSE-100 index would have increased by more than 7 times since 1991 to reach $7,273, even if we consider for currency depreciation,” he said.

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

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

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

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

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

Best year for KSE-100 Index was FY03 when market returned 92 percent whereas FY98 was the worst year when index declined by 44 percent.

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 percent.

“During the last 30-years, we have seen market performance taking a hit during periods of low economic growth,” he said, adding that periods including FY97 and FY98, FY08 and FY09, and FY19 witnessed decline in the KSE-100 Index as GDP growth fell below 4.0 percent during the period.

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

Copyright Business Recorder, 2021

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