KSE 100 vs our Thrifty NIFTY

Two news topics on Pakistan – the air crash and accounts of the new found bonhomie between India and Pakistan gave me the thought to look up the stock market there. I was a bit lost trying to find out historical data on the KSE 100 (Karachi Stock Exchange – 100 stock Index). It’s certainly not available on the KSE website for people like me. The exchange, set up during Partition in 1947, actually sells that data! So I got it from the yahoo!finance website instead – but hold on a minute! Doesn’t this mean that…nevermind.

As is my wont, I plotted NIFTY data for the period corresponding to the KSE 100 data that I could find on the internet. The result as you can see in the chart above is astonishing indeed. I mean – I don’t just get it. Neither does this paper that I scourged from the internet which inter alia says:

…the analysis of KSE 100 Index reveals serious structural flaws in true return of the companies in the Index and it is unable to represent the economy. These conclusions pose a serious threat to the use of KSE 100 Index as a benchmark for market return in Capital Asset Pricing Model (CAPM) in fair value calculation of Pakistani stocks. This also creates doubt about the forecasting ability of KSE 100 Index about the GDP growth rate of Pakistan.

Indeed, the paper does note that the correlation between GDP growth rate of Pakistan and what many consider to be its benchmark equity index is quite low. Who knows – maybe there is a flip side to what I learned today which may explain what meets the eye. The NIFTY on its part may also lend itself to some criticism for all you know.

However, I for one is quite happy for what the folks at Dalal Street have done recently to the Sensex – they caught up with the NIFTY in one aspect by including Dr. Reddy’s Labs into the Index!!!! Cool.