Performance of Karachi Stock Exchange before and after Demutualization: Pros & Cons, a Comparative Study

Abstract

Demutualization of Karachi Stock Exchange is biggest milestone for Pakistan. The purpose of this study is to explain the performance of Pakistan Stock Exchange (PSX) and determine post and pre effects also. Comparison is done in this regard with regional exchanges. This research study is finalized by exploring existing published literature and on demutualization on Pakistan stock exchange and other demutualized exchanges around the world. The research methodology in this research include open ended questionnaire which was sent to respondents from PSX, Securities Exchange Commission of Pakistan and telephonic interviews also done to get response from Brokers and Financial analysts. This research’s results indicated that demutualization has supported PSX much during the crisis like COVID-19 and has positive impact on exchange performance. It was because of demutualization that monopoly of brokers ended and thus it improved in corporate governance, transparency in trading, operation efficiency and increased liquidity through IPOs in market. Where there are opportunities there are threats also, benefits comes with risk like political uncertainty, conflicts of interest among management, fluctuations in market and uncertain situation like COVID-19 which had impacted negatively and foreign investors divested their investment from PSX. Study from regional stock exchanges like Dhaka Stock Exchange, and Indian Stock Exchange also illustrated a vivid picture of demutualization and its benefits though they differ from PSX in things like market stability, government policies and other things but yet Pakistan despite being developing country and loop holes in political system competing with regional exchange and it was ranked 5th biggest in performance in Asia in 2016 by Bloomberg. This research thesis is very beneficial for creating awareness for students, public, small investors in the market.