PSX
PSX has made significant strides in its history, having a small presence of 5
listed companies initially with a total paid-up capital of Rs 37 Mn. In 1960
there were 81 companies with a market capitalization of Rs 1.8 Bn whereas
now there are 546* companies listed in the bourse with a market
capitalization of Rs 7.692* Tn. The listed companies are distributed amongst
35 sectors/ groups of industries.
*As of Dec 31, 2018
Mission
PSX contributes to the economic development of Pakistan by providing a fair,
transparent, and efficient marketplace to facilitate capital formation for the
benefit of investors, issuers and all stakeholders.
Vision
A world class exchange for Pakistan.
Open an Account & Invest
OPEN YOUR BROKERAGE ACCOUNT:
After the selection of your brokerage firm, you will open a Brokerage Account. You
must ensure that the said Account is opened in your name. You will be given a
Client Identification Number or an Account Number against this account. Read the
terms & conditions prescribed in the Account Opening Form and make sure that
they match with the Standard Account Opening Form available on the PSX
website.
Subsequently you will open a CDC Sub Account. The CDC Sub Account is the
account through which you can actually trade in the stock market.
You are also encouraged to open a CDC Investor Account. This account is opened
at the CDC, thereby adding to greater safety and individual custody of your
shares.
You must make sure that you are assigned a Unique Identity Number (UIN). It is
this number against which all your brokerage accounts and transactions will be
recorded.
You will also need to deposit initial funds to purchase shares. Make sure that it is
not a cash deposit.
PLACE YOUR ORDER & GET CONFIRMATION:
Once you have decided which companies’ shares to buy, you should place your
orders through your stock-broker (or through the online application provided by
your brokerage firm)
After placing the order and execution of the same, you should get a Trade
Confirmation against your executed order.
SETTLEMENT OF TRANSACTIONS & STOCK MARKET ECOSYSTEM:
The shares purchased or sold are settled (payments made or received) through
NCCPL (National Clearing Company of Pakistan Limited). The exchange of shares
takes place through the CDC (Central Depository Company Limited). These two
organisations and the brokerage firms/ TREC holders form the major part of the
ecosystem of PSX.
ONLINE TRADING FACILITY:
Many brokerage firms offer Online Trading facility for its customers. This allows
you as an investor to trade by yourself on the Stock Exchange through the online
application or software.
BASIC TAXES & CHARGES:
There are several taxes and charges applicable on shares trading at PSX; the basic
ones are listed as follows:
CGT (Capital Gains Tax) [Tax Return Filers: 15%, Tax Return Non-filers: 20%],
Brokerage Commission [Varies amongst brokerage firms], CVT, IPF, SECP Fee etc.
SEQUENCE OF STEPS TO START INVESTING IN STOCKS:
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Define your investment objectives.
Shortlist a number of registered and licensed brokerage firms based on
your preferences.
Select a brokerage firm that fits your requirement.
Open a Brokerage Account, CDC Sub Account and a CDC Investor
Account.
Deposit funds in your account through cheque.
Select the companies to invest into based on some or all of the
parameters mentioned in the Basic Guidelines for Stock Investment, your
preferences and discussing the same with your stock-broker. Thereby
building your portfolio.
Start investing.
Account Opening Checklist
Enclosures (for individuals):
● Attested copies of National Identity Card of the applicant.
● Attested copies of National Identity Card of the Joint Holders and or
Nominee(s) (if applicable)
● Attested copies of passports of the applicant, Joint Holders and or
Nominee(s) (in case of non-residents)
● Copy of the letter of authorization from the Account Holder(s) of the
person authorized to trade in my/our accounts (if other than the account
holder).
● A list of Transaction fee, Commission to be charged by the Broker and
other CDC charges to be levied.
Enclosures (for corporate entities):
● Certified true copy of Board Resolution (specimen provided as per
Annexure-A below).
● Certified true copies of Memorandum & Articles of Association.
● List of authorized signatories.
● List of nominated persons allowed placing orders.
Select Your Stock-Broker
You can invest and trade in the stock market through TREC (Trading Rights
Entitlement Certificate) holders/ brokerage firms recognised by PSX and licensed
by the Securities & Exchange Commission of Pakistan (SECP).
List of Brokerage Firms
Branches of Brokerage Firms
You must shortlist a number of brokerage firms based on your individual
preference. You must talk to the shortlisted firms and make your final selection
based on your requirements. You may select your brokerage firm depending on:
● Ease of communication & understanding of your defined investment
objectives.
● Availability of research material.
● Availability of online trading facility.
● Provision of trade confirmations.
● Brokerage charges levied.
● Physical proximity to your work-place or residence.
Why Save & Invest:
You want to live your life and follow your dreams. We all have a list of things that
we want to achieve in our lives which require money to attain them. These may
include goals for the near future like:
● Planning the next vacation
● Buying a home theater
● Planning a destination wedding
● Renovating your house
● Upgrading your car
There is also a list of things you have to do in the distant future. These life goals
may include:
● Children’s college and university education
● Investment for retirement
● Entrepreneurial set-up
● Buying your own house
All these life goals are achievable if you plan well, save early and invest prudently
While planning our investments we must also account for the unforeseen and
emergency situations we may be faced with. Life is unpredictable and we can
come across any situation like:
● Severe/ terminal disease
● Accidents
● Loss of employment or business downturn
All the above need planning our investments. In order to invest, we begin with
savings. We must invest our savings to ensure:
● We beat the effects of inflation which eats up the value of our money.
● We multiply/ increase the value of our money saved instead of leaving it
idle
If you have thought of all of the above, Congratulations - You are ready to save
and invest!
BEGIN SAVING:
You can start saving as early as possible. Perhaps a chunk of your salary should
be saved every month until you have enough to invest; a rule of thumb is to save
20% of your income. At the same time, if you have family support or other
sources of income, a monthly addition of these funds can definitely help you save
more until you have enough funds to start investing.
BEGIN INVESTING:
There are many savings & investment plans and products available in the market
to choose from. If you keep your money in a bank account, you will get nominal
returns on your savings. However, you are bound to get higher returns and
cushion yourself against risk if you can invest your savings in a diversified
portfolio of different investment vehicles such as:
● Bonds
● Treasury Bills (T-Bills)
● Term Finance Certificates (TFCs)
● Mutual Funds
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Stocks
WHERE TO INVEST:
It is always a good idea to invest your money where you get good returns.
The stock market is one such avenue where there is good upside potential,
historically, and where the returns have been higher than those from other
investment avenues. Investing for the long term is a better option than
investing for the short term in the stock market. It will not only allow you to
compound your earnings but will also enable you to earn dividends which can be
re-invested in the stock market, thereby increasing your earnings. So you must
focus on compounding your earnings, reinvesting your dividends, and
achieving capital gain.
WHAT THE STOCK MARKET CAN DO FOR YOU:
By purchasing shares of the selected companies, you build your portfolio of stock
investments. This portfolio is formed and selected on the basis of:
● Company
● Sector
● Returns you are expecting
● Risk capacity (how much can you invest in spite of market volatility)
● Risk tolerance (how much market downturn and volatility can you
sustain)
● Payouts (dividends or bonus shares)
● Any other considerations you may have according to your stock
investment preferences
By purchasing the shares of a company, you become a shareholder of that
company and are entitled to dividends and other payouts such as bonus or
right shares issued by the said company, along with the advantage you can have
of capital gain from increase in price of the shares.
If you have decided to invest in the stock market, then it is a decision well worth
taking. Consider this that Pakistan Stock Exchange has performed better over the
last several years, above and beyond other investment vehicles available in the
country
Returns earned from the Stock Exchange as compared to other asset classes over
the ten year period, Mar 2010 to Mar 2019:
KSE 100 Index stocks provided compounded annual returns of 15.13%* over the
last 15 years Dec 2003 to Dec 2018. These figures compare fairly well with other
avenues of investment in Pakistan.
The fact that the Pakistan Stock Exchange has given good returns historically, it is
safe to say that investment in stocks in Pakistan Stock Exchange may well be
worthwhile for the long run
HOW THE STOCK MARKET WORKS:
The stock market is a place where companies list themselves to make their shares
available to a broad range of investors to purchase these shares. You, as an
investor, have the option to choose from multiple stocks of different companies to
buy in order to build your investment portfolio. The share prices of the shares
listed on the Stock Exchange fluctuate according to the buy & sell transactions
taking place.
WHY & HOW ARE SHARES OF COMPANIES LISTED:
PRIMARY AND SECONDARY MARKET:
The main purpose of the stock market is raising of capital through investment in
shares of listed companies. Listed companies are those which issue shares in the
stock market to raise capital. This is done either through an Initial Public Offering
or Rights issue.
An IPO or Initial Public Offering (Primary market) is the issuance of shares by a
company in the stock market in order that its shares are purchased by the general
public. Once the IPO has taken place, the shares continue to be traded in the
stock market (Secondary market), changing hands between buyers and sellers.
Another way a company raises its capital is by issuing right shares at a certain
price to existing shareholders. A shareholder interested in purchasing the right
shares may do so if he deems it fit.
PSX & ITS LISTED COMPANIES:
Pakistan Stock Exchange consists of a list of 546 companies in 35 different
sectors or industries. The total Market Capitalisation (volume of outstanding
shares times share price) was Rs 7.692 Tn as of Dec 31, 2018.
WHAT IS AN INDEX & WHAT IS ITS PURPOSE:
Index is a grouping of selected companies’ stocks according to certain financial
parameters in order to measure the performance of a section of the stock market.
INDICES LISTED ON PSX:
There are seven Indices listed on PSX which are:
● KSE 100 Index
● KSE All Share Index
● KSE 30 Index
● PSX-KMI All Shares Index
● KMI 30 Index
● BKTI (Tradable Banks Index)
● OGTI (Tradable Oil & Gas Index)
SHARIAH COMPLIANT INVESTMENTS:
For those investors who want to invest in Shariah compliant companies, there are
listed companies on the Stock Exchange which are Shariah compliant. The PSXKMI All Shares Index & the KMI 30 Index (KMI: KSE-Meezan Index) represent listed
companies which are Shariah compliant. There are more than 200 companies
listed on the PSX-KMI All Shares Index. The PSX-KMI All Shares Index & the KMI
30 Index were developed by PSX and Meezan Bank Limited. The listed companies’
Shariah compliance status is based on certain technical parameters and
specifications as approved by a Shariah Board. In case of KMI 30 Index, it was
approved by Shariah Supervisory Board of Meezan Bank Ltd., chaired by eminent
Shariah scholar Justice (Retd.) Mufti Muhammad Taqi Usmani.
BASIC GUIDELINES FOR STOCK INVESTMENT
DEFINE YOUR INVESTMENT OBJECTIVES
A basic guideline is to understand what you really want from your stock investment
● Do you want to invest for the short term (1-3 years), medium term (3-5
years) or for the long term (5 years or more)?
● Do you want to invest for dividends or for capital gain or for both?
● How much risk can you take in terms of market downturns?
These are the basic questions you must address before investing
Optimally, you may want to invest in stocks for the long term, in order to earn
dividends (periodically, through dividend yielding stocks) and for capital growth
(gain in share price) over a number of years
YOU SHOULD DIVERSIFY YOUR INVESTMENT
As mentioned earlier, it is important to have a diversified portfolio of investments.
You can have a diversified portfolio of stocks in order to cushion the effects of
market downturns & volatility and to keep your total investment relatively secure.
You can diversify your portfolio by
● investing in different products listed on the Stock Exchange such as
stocks of listed companies, T-bills and mutual funds
● Investing in stocks on the basis of different industrial sectors or their
market capitalisation
● Investing in stocks based on shares that give dividends or shares that
provide for sufficient capital gain or both
● Investing in stocks with different risk/ return levels. Some providing
greater returns while others providing less returns. At the same time, the
risk level of former will be greater than that of the latter
EVALUATE YOUR RISK TOLERANCE AND CAPACITY LEVEL
You must evaluate how much risk you can take/ what is your risk tolerance level if
the market takes a downturn.
● If you are risk-averse, your investment portfolio of stocks should be
passive. In this way, you will be assured of receiving a return at market
risk level.
● If you are less risk averse, your investment portfolio can be a combination
of stocks which provide for returns at market risk level and above market
risk level
● If you are investing as an aggressive investor, you can invest in stocks
which provide for higher returns reflective of higher than market risk
Having a balanced portfolio with different market risk levels of shares and their
returns is usually a good combination to build a portfolio of stocks.
You must also understand your risk-taking capacity. How much are you able to
invest in the stock market in the face of the downturns and volatility it is
undergoing?
STOCK SELECTION – LOOK AT THE PARTICULARS OF LISTED COMPANIES’
STOCKS
In order to select the companies you want to invest into, you may want to look at:
● The fundamentals and financials of the companies
● The volume of activity in the stock market
● The prevailing share price
● The Price to Earning ratios (P/E)
● The Earning per Share (EPS)
● The indices in which the companies are listed (are they blue-chip KSE 100
Index companies?)
● The annual payouts given by the companies
The industry/ sector performance of the companies
The above are some of the guidelines you may want to go by in order to select the
companies you want to invest into.
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WHEN TO ENTER OR EXIT THE STOCK MARKET
A lot of investors are usually confused when to enter the market and when to exit
it. It is a safe proposition to enter the stock market when the Price to Earning
ratios are low and the stock market is in an oversold position. Similiarly, it may be
profitable to exit the market when the opposite conditions are true. But, as a
general rule, it is not when you enter or exit the stock market, but how long
you can stay in it.