Abstract:
The main aim of this study is to find the relation between the interest rate i.e. discount rate (DR)
and the Equity Market which is the Karachi Stock Exchange (KSE). In this research we also try
find out the impact of the variation of the interest rate on the leverage companies like ENGRO
Fertilizer and other leveraged sectors. This research paper also focuses on the causes that affect
interest rate. The main aim of the study is to aware the investors what they have to do when the
State Bank of Pakistan change the discount rate, where they have to move their money to get
healthier return on their investments. It is also discussed in the study that, what are the impacts of
change of interest rate on the economy of the country? Detail discussion on the interest rate and
the Karachi Stock Exchange (KSE). Who was the largest beneficiary of the change in the interest
rate on 10'1' October, 2011 where Government opted to dialed back discount rate by 150 basis
points to 12 %? In order to identify the relationship between the interest and its impact on
different sectors of an economy and as a whole this research paper has used coefficient
correlation, amortization and sensitivity analysis. This paper also highlights the main reasons of
increasing inflation in Pakistan which is the main criteria to change the interest rate.
