Home / Finance & Market / Role of Pakistan stock exchange in economic development

Role of Pakistan stock exchange in economic development

Published on 31st Oct, Edition 44, 2016

 

The role of stock exchange market is to raise long-term funds for corporation (primary market) while providing the trading platform for the trading securities (secondary market). Stock exchange markets encourage investment through provision of a lot of resources. This enables the cooperation to attain a lot of funds for their business expansion.

Primary market carries the initial offerings of the stocks and bonds to investors by definition. The secondary market is platform for the subsequent trading.

Supply and demand in stock markets is driven by various factors. Stock exchanges are part of a global market for securities. Stock exchanges apart from being hub of market, have very important role to play in the economy of the country. They raise capital for businesses. Exchanges help companies to capitalize by selling shares to the investing public.

Stock market mobilizes savings for investment. They help public to mobilize their savings to invest in high yielding economic sectors, which results in higher yield, both to the individual and to the national economy. It helps companies to expand and grow by acquisition. This helps domestic companies to tap foreign savings through foreign flows. Both casual and professional stock investors can get their share in the wealth of profitable businesses. Stock exchanges impose strict rules to get listed in them have better management records than privately held companies.

Stock exchanges create investment opportunities for small investors. Small investors can also participate by buying a small number of shares. Stock maintains the stock indexes, which are the indicators of the general trend in the economy and regulate the stock price fluctuations.

Stock market serves as the economic barometer and can give important signals to economic policy. Anybody with a private pension or investment trust will be affected by the stock market, at least indirectly. Pension funds invest a significant part of their funds on the stock market. If share prices fall too much, pension funds can struggle to meet their promises.

The important thing is the long term movements in the share prices. If share prices fall for a long time then it will definitely affect pension funds and future payouts.

Often share price movements are reflections of what is happening in the economy. A fear of recession and global slowdown could cause share prices to fall. The stock market itself can affect consumer confidence.

Pakistan Stock Exchange provides a platform to get the funds to lead their companies for the betterment. It in turn enables the capital at domestic and international level. The role of stock exchange is important for the countries moving towards greater interests. Pakistan Stock Exchange is playing the same role for last few decades for its country. It helps the government as well as public and private sector to raise money through privatization and GDR offerings. It acts as the leading sector in realizing the real side of economy and an indicator of growth. It provides the chances of redistribution of wealth through increase in stock prices and dividends with investors getting the chance to share in wealth in businesses profits.

The exchange provides investment opportunities for the small investors. They can own shares in the companies listed at Karachi stock exchange just like large investors. The healthy trend in this regard is Online trading, which leads to greater awareness for retail participation and it provides the benefits for the large number of people.

Pakistan Stock Exchange would continue to play positive role for serving the investors and industry for economic development of the country.

The role of stock exchange is very important for the growth of private sector as it provided a good platform to raise capital for businesses, mobilize savings for investment and create investment opportunities for small investors. Capital markets should come up with some good incentives for SMEs so that SMEs can raise funding from capital markets easily for growth and for starting new projects.

 

Great platform

Pakistan Stock Exchange (PSX) is a great platform to raise capital for business expansion and growth. Raising capital from the capital market is more beneficial for the private sector as it increases the value of equity capital of well performing companies. PSX was among the 10 best performing stock exchanges of the world during 2012-2015, which reflected the robust performance of the corporate sector where earnings on average have grown by over 20 percent per annum in the last five years while return on investment has averaged nearly 21 per cent.

During the last decade, companies have raised a total amount of Rs1.160 trillion in terms of equity capital and debt from stock market, which showed that the capital market is playing an important role in meeting the long term financing needs of companies for growth.

Establishment of an integrated PSX would be highly beneficial as it would provide a nationwide footprint, attract more investors and provide maximum people better access to the capital market.

Iran has 4 million investors in the capital market; Bangladesh, 2 million and India, 22 million; but in Pakistan this figure was barely 0.2 million, which was far less than the real potential.

Lack of knowledge among people and the business community about the importance of stock market is the main reason of low investment and that there is a great need to create more awareness in people about the capital market.

Need of strong rule and regulation

Many investors have lost billions of rupees in the capital markets due to market crash and that PSX and Securities and Exchange Commission of Pakistan (SECP) should formulate strong rules and regulations to ensure full protection of investors from market abuse so that investors can invest in these markets with confidence.

China may take the place of the International Monetary Fund and prop up Pakistan’s economy.

The Nikkei Asian Review reported that the state-owned Shanghai Stock Exchange has submitted a letter of intent to buy up to 40 percent of the Pakistan Stock Exchange. When PSX was formed in January by consolidating the Lahore, Karachi and Islamabad exchanges, Pakistan Stock Exchange kept 40 percent of its shares in its treasury and it now wants to sell those shares to form a capital alliance.

Check Also

Contribution of agriculture in GDP

  Agriculture is a predominant activity in most developing countries. As economic growth and development …

Construction industry-mother of economic activity

  Construction industry is one of the largest sectors having a large number of sub-sectors …

Leave a Reply

Your email address will not be published. Required fields are marked *