Karachi, February 24, 2024 – As the anticipation builds for the formation of a new government in Pakistan next week, financial analysts predict a positive impact on the stock market.
According to experts at Arif Habib Limited, the upcoming government formation is likely to reinforce the current positive sentiments prevailing in the market.
The analysts forecast that the new government, expected to be established in the coming week, will contribute to an already optimistic market atmosphere. Additionally, the ongoing results season is anticipated to keep certain stocks in the spotlight, driven by expectations of robust financial performances.
One significant factor contributing to the favorable market conditions is the attractive valuations at which various stocks are currently trading. This allure is expected to attract investors, further propelling the market momentum in an upward direction.
The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) is presently trading at a Price-to-Earnings Ratio (PER) of 4.2x (2024), compared to its 5-year average of 5.9x. The index also offers an attractive dividend yield of approximately 10.8 percent, surpassing its 5-year average of around 6.0 percent.
The market demonstrated a buoyant momentum during the week, witnessing a surge in the index level from 59,000 points to over 62,000 points. This heightened sentiment follows an agreement between winning political parties to form a coalition government. Meanwhile, on the economic front, the current account shifted to a deficit of USD 269 million in Jan’24 from a surplus of USD 404 million in Dec’23. Remittances reported a commendable growth of 26 percent YoY in Jan’24.
In financial developments, the recent Treasury bills auction revealed an increase in cut-off yields by 126 basis points, affecting both 3-month and 12-month tenors. On the other hand, National Saving Schemes (NSS) rates experienced a decrease across various certificates, ranging from 40 to 160 basis points. Power generation climbed by 7.6 percent MoM in Jan’24, indicating positive trends in the energy sector.
The Roshan Digital Account recorded an inflow of USD 142 million in Jan’24, reaching a total of USD 7.3 billion. However, foreign reserves held by the State Bank of Pakistan (SBP) declined by USD 44 million WoW, settling at USD 8.0 billion on 16th Feb’24. Despite these fluctuations, the market closed at a robust 62,816 points, marking a significant gain of 2,943 points (4.92 percent WoW).
Sector-wise contributions to the positive momentum were led by Exploration and Production (E&Ps) with 623 points, followed by Banks (513 points), Technology (355 points), Fertilizer (255 points), and Power (254 points). Conversely, Miscellaneous (26 points) and Chemical (16 points) were the sectors making negative contributions. Notable positive contributors at the scrip level included OGDC (340 points), PPL (221 points), HUBC (216 points), SYS (201 points), and MEBL (195 points). On the flip side, negative contributions came from PSEL (57 points), NESTLE (20 points), COLG (15 points), FATIMA (11 points), and AKBL (10 points).
Foreign buying continued during the week, amounting to USD 2.9 million, though slightly lower than the net buy of USD 5.2 million observed in the previous week. The major share of foreign buying was witnessed in “All other sectors” (USD 3.7 million) and Commercial Banks (USD 1.5 million). On the local front, selling activities were reported by Individuals (USD 6.2 million), followed by Insurance Companies (USD 1.6 million).
Despite a slight decrease in average volumes (down by 3.3 percent WoW), the market maintained its strength, with the average value traded settling at USD 45 million (down by 6.3 percent WoW).
As the nation awaits the formation of the new government, the stock market appears poised for continued positive trends, offering potential opportunities for investors in the coming weeks.
