IMPACT OF INTEREST RATE ON THE EQUITY MARKET"

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.