Pakistan Stock Market Poised for Gains in Week Starting May 6

Pakistan Stock Market Poised for Gains in Week Starting May 6

As the week of May 6, 2024, approaches, Pakistan stock market is poised for an upbeat phase, backed by a series of positive economic indicators and promising developments in international financial engagements.

Market analysts from Arif Habib Limited project that the potential advancements in the new IMF program could significantly enhance investor sentiment and drive the market’s momentum forward.

The Pakistan Stock Exchange (PSX) is witnessing an appealing period as stocks continue to trade at enticing valuation levels. The benchmark KSE-100 index is currently trading at a price-to-earnings ratio (PER) of 4.6x for 2024, noticeably below its 5-year average of 6.1x. Moreover, it offers a robust dividend yield of approximately 9.9%, which exceeds the 5-year average of about 7.3%.

Despite enduring some challenges, such as persistent market pressures in anticipation of a rate cut that did not materialize, the market has demonstrated resilience. The main interest rate remains unchanged at 22%, a move that left some investors in wait-and-see mode. Yet, Pakistan’s economic landscape shows signs of improvement, notably with the receipt of the last $1.1 billion installment under the IMF’s Stand-By Arrangement (SBA) program.

April’s headline inflation rate marked a significant easing, recording 17.34% year-over-year (YoY)—the lowest since May 2022, a stark contrast to the 20.7% observed in March 2024. This reduction in inflation comes as a relief and is a hopeful sign for further stabilization. The trade deficit also showed improvement, shrinking by 17% YoY for the first ten months of the fiscal year 2024, amounting to USD 19.5 billion.

The government’s proactive measures in reducing the prices of Motor Spirit (MS) and High-Speed Diesel (HSD) by PKR 5.45 and PKR 8.42, respectively, along with a modest increase in the foreign reserves held by the State Bank of Pakistan (SBP), which rose by USD 25 million week-over-week to USD 8.0 billion, further bolster economic sentiments.

Despite a few sectors such as Technology & Communication, Fertilizers, and Commercial Banks dragging the index down over the past week, there were notable positive contributions from the Oil & Gas Exploration and Marketing Companies.

The market also observed robust foreign buying activity, totaling USD 8.0 million for the week, led primarily by investments in the Fertilizer and Commercial Banks sectors. However, average trading volumes decreased by 21% week-over-week, indicating a slight cooling in trading activities.

As these factors align, the upcoming week presents a promising landscape for investors in the Pakistan stock market, as improved economic metrics and supportive government actions are likely to nurture a positive market environment.