QUESTION # 1

"Capital market loses 32 percent in PTI's first year

The capital market suffered colossal daily losses of around Rs7.6 billion per session or over Rs2,700 billion as the benchmark KSE-100 shares index lost more than 32 percent during the first year of the new government.

Prime Minister Imran Khan took oath on August 18, 2018, and dealers say the year has not been very encouraging for both domestic and foreign investors.

Pakistan Stock Exchange started its journey from 42,446 points, with market capitalisation at Rs8,703 billion. It received heavy bashing and the index trimmed 32 percent or 13,682 points. Market capitalisation saw decline of more than Rs2,797 billion, with key scrips plunging sharply.

After taking a cursory look on the companies' movement, prices dipped significantly in the range of 8.0 percent to 72 percent. Shares of several key scrips declined more than the stock market slippages.

Hub Power fell more than 35 percent, Lucky Cement more than 39 percent, Pakistan Oilfields more than 43 percent, SNGPL 45 percent, Pakistan Petroleum Limited 47 percent, Nishat Mills 51 percent, DG Khan Cement 61 percent, PSO 62 percent, Attock Refinery 66 percent, and International Steels 72 percent.

Investors went down and out while losing Trillions of rupees in stock market due to declining stock prices (...added)

Source: https://www.thenews.com.pk/print/513498-capital-market-loses-32-percent-in-pti-s-first-year

Required:

a. What does KSE-100 index represents and explain its importance in Pakistan economy. (Key words for this answer are index type, index composition and re-composition, actively managed mutual funds)

b. Why did stock prices of Hub Power, Lucky Cement, POL, SNGPL etc fell in first year of PTI government? Discuss the factors and their mechanism that lead to decline.

c. "Investors went down and out while losing Trillions of rupees in stock market due to declining stock prices (...added)". How did investors lose money while index was declining by 13,682 points, that is, from 42,446 to 28,764 points? You may explain your answer with the help of hypothetical data. (Key words for this answer are Margin transactions, margin call)