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Trends in stock market are usually observed by looking at a number of quantitative indicators, such as number of companies, listed capital, market capitalization, average daily turnover and average daily volume of trade. These quantitative indicators may very well be termed as causative factors because all these indicators have cause effect relation on one another. During 1994, all of the quantitative indicators show a positive trends and only market capitalization was declining in all three stock exchanges. Following is the brief discussion of each of these indicators:

 1. Number Of Listed Companies

Historically thenumber has increased  in all three stock exchanges. In KSE it has increased from 15 in 1950 to 748 in 1994. but the actual number of companies has to be compared with the listed companies in Bombay stock exchange .BSE has more than 7000 companies today. KSE has also such potential in terms of increasing the number of companies keeping in view the fact that the number of private limited companies in Pakistan today are in the range of 25,000 to 30,000.

 2.Listed Capital

The listed capital in all stock exchanges show an increasing trend during 1994. historically, listed capital in KSE has increased from Rs. 117.315 million in 1950 to Rs104 ,137 million in 1994. recently the concept of 100 percent equity based projects are coming to the stock exchanges. It is a positive thing giving the fact that traditional sources of capital are getting crowded out. This is a positive development but also the need of the hour is that in a project with debt and equity, it goes through a phase of diligent evaluation from all angles, where as 100% equity based project does not go through that phase of evaluation by the financial institutions.

 3.Market Capitalization

 This is the only indicator which has shown a decreasing trend during 1994. over the time, market capitalization of KSE, has increased from Rs.1871.4 million in 1960 to Rs.398,912 million in 1994. Factors responsible for the recent decreasing trend, are both internal and external. External factors include international factors as well as the domestic factors, like law and order situation and political instability. The most important factors, however, is internal. The important thing is that it is a self-adjusting process. If market capitalization goes down, companies coming for the listing automatically slow down because of the anticipation that they may not be subscribed. There was also too much supply of shares and the absorption capacity of the investors, particularly the local investors were not there to take that much supply.

4. AVERAGE DAILY TURNOVER

 Average daily turnover percentage also shows increasing trends in all stock exchanges in 1994. Today average daily turnover at KSE is around 17 million shares which was previously between 7 to 8 million shares. This is about two-fold increase . At LSE, it seems more phenomenal where average daily turnover increased from 4000 to 5000 to approximately 5 million shares, a ten times increase. ISE, similarly, has seen a huge growth in terms of volumes. This growth in turnover brings the much needed liquidity. It again makes the market more attractive, both for domestic and foreign investors. The importance here is to look at the quality of this turn-over. At this point in time, quality of turn-over is mainly jobbing which is not a healthy trend. It has to be order driven. Concentration of market driven firm investors is another concern. Today, 80 to 90 percent of the volume is moving around 5 to 6 groups. That is also not a healthy  trend and has to be looked at.

 5. AVERAGE DAILY VALUE TRADED

 Average daily value traded has gone up and practically every where in the world where capital market has developed, the market participants and the members make money, because if they make money they expand and further deepen the capital market. So it is imperative that all the policies are directed towards this and that they are allowed to grow. There are different growth strategies that one can talk about. One is the opening of the stock exchanges, the other is allowing the existing member to branch out, the third is opening up the sub-brokerage hoses. Each strategy has to be properly looked at and one must have justified criteria, if one is to develop further stock exchanges. Specially so when companies listed on the three stock exchanges are same.

 6. MEGA PROJECTS

 Pakistan stock market has seen a new concept which was previously unknown, and that is of mega-projects. PTC, Hub-Power, Faisal Bank and Lucky Cement are examples. This advent of mega-projects has lot of implications

 1.                 It has increased the liquidity aspect which was problem at LSE and ISE and was the problem of international :investors. Now there are 4 to 5 companies which are practically dominating the turnover at three stock exchanges. This is however, not a negative trend and had to happen out of necessity.

2.                 Another  implication of these mega-projects is that companies with smaller floats will practically dry-out, and our stock exchanges would be operating basically with the four or five companies of bigger floats. One must classify the shares according to the activity and size; that is imperative. That more time should be given to these shares and at the same time, they should be more closely monitored. Consider the example of London Stock Exchange where they have classification of shares in Alpha, Beta and Gamma, which is actually the classification of shares according to the activity and size.

3.                 These mega projects have contributed a lot towards increasing the saving rates, because the way they were advertised, has its implications. And also because the costs associated with relative size of the projects are small.

4.                 This experience can act as a progressor for our stock exchanges to become international in the sense of offering service to countries like Central Asian states, where capital markets do not exist.

7. GLOBALIZATION

One must look at the present global environment which is characterized by private capital. Gone are the days when the reliance was on official capital like World Bank and IMF grants. It is the era of private capital and one must take into account that the entire world, right from the Latin America to Eastern Europe, pacific rim countries and the entire South Asian region is hungry for this private capital. We are in a  very competitive environment and all our policies have to take into consideration the steps being taken by these capital starved economies. Recent global turmoil in financial markets out the theory in question which advocates for diversifying the portfolio globally. An important phenomenon is that markets today are open in the sense of having linkages with international events. Our market has to be prepared to take care of these things because institutional investors unlike the individual investors show this herd behavior. There are 15 or 16 institutional investors who act as the trend setters and all the others smaller institutional investors follow them. If emerging markets are invoked, all of them would step in. if these markets are going down, out of fashion, all will go down. So that is the tend one has to look at.

 The short term liquidity, that has come in our markets, is double-edged in the sense, that if it Is drawn suddenly it will have disastrous consequences for our economy.

 8. CROSS BORDER LISTING AND FLOATATION

 Cross-border listing, like PTCL, global depository receipts and offering outside Japan in recent time, to the extent that it has introduced Pakistan to the international investors which were not known before. But there are lessons to be learnt from this. In India, for example, there are about 55 such instruments, GDR’s convertible bonds and other issues with no feature of convertibility. PTC has a feature of convertibility and an arbitrage taking place between the International market and our local markets. As a result all the money has been skimmed away. This is something to be looked at and to decide whether we need this convertibility feature in international listing or not.

 With rising volume, another event that has been observed is that trade between the local stock exchanges has gone up. Originally this trade was one way, from Islamabad – Lahore to Karachi. But with this liquidity a two way trade is taking place. And again arbitrage is something to be exploited and again another lesson to be learnt  is that of barring scandals. It was while arbitrage that was taking place between Tokyo and Singapore, that the crisis happened.

 9. DEBT INSTRUMENT

 debt Instrument is a new development to our market. It lowers the cost fort he investor, and is a very efficient allocation because it takes away the intermediary, and borrower and lender can interface directly.

 10. VOLATILITY

 Volatility is very common in stock markets. Speculation is not all bad. It plays a very crucial role by providing a liquidity and continuity of prices to the shares. Since speculation has certain advantages, it should be optimal. We may not have over regulations so that growth is killed, nor less regulations so that speculation becomes rampant.