Karachi, July 27, 2024 – Analysts at Arif Habib Limited forecast a positive outlook for Pakistan stocks in the upcoming week, driven by the expectation of a policy rate cut at the monetary policy meeting scheduled for July 29, 2024.
In their weekly report, analysts highlighted that the anticipated rate cut could bolster market sentiment, maintaining the positive momentum seen recently. Additionally, the ongoing results season will likely support this trend. The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) is currently trading at a price-to-earnings ratio (PER) of 4.1x for 2025, compared to its 5-year average of 5.9x, offering a dividend yield of 10.1% against its 5-year average of 8.1%.
Despite a USD 7 billion staff-level agreement between the IMF and Pakistan, the commencement of the results season, and the anticipation of a rate cut, the market remained negative during the week ending July 26, 2024. The KSE-100 index closed at 78,030 points, losing 2,089 points or 3% week-on-week. This bearish trend was primarily driven by political uncertainty in the country.
On the economic front, Foreign Direct Investment (FDI) settled at USD 169 million in June 2024, a decline of 37% month-on-month. The State Bank of Pakistan’s (SBP) foreign exchange reserves decreased by USD 397 million week-on-week to USD 9.0 billion. Power generation for FY24 dropped to its lowest level in four years, totaling 127,167 GWh. Furthermore, the Pakistani Rupee (PKR) depreciated against the US Dollar (USD) by PKR 0.21 or 0.1%, reaching 278.34.
Sector-wise, the negative contributors to the market included Power Generation & Distribution (153 points), Cement (111 points), Commercial Banks (107 points), Oil & Gas Exploration Companies (96 points), and Fertilizer (83 points). Conversely, sectors contributing positively were Technology & Communication (31 points), Chemical (27 points), Automobile Assembler (19 points), Real Estate Investment Trust (5 points), and Textile Spinning (2 points).
In terms of individual stocks, HUBC (-120 points), DAWH (-84 points), UBL (-56 points), ENGRO (-49 points), and PSO (-45 points) were among the major negative contributors. On the positive side, MEBL (49 points), TRG (42 points), EFERT (35 points), LCI (30 points), and FFBL (18 points) showed significant gains.
Foreign buying persisted during the week, totaling USD 4.6 million, although this was lower than the previous week’s net buy of USD 9.3 million. Major foreign buying was observed in Oil and Gas Marketing Companies (USD 1.4 million) and Commercial Banks (USD 1.2 million). Locally, Mutual Funds were the primary sellers, offloading USD 5.0 million worth of stocks, followed by Individuals with USD 1.7 million in sales. Average trading volumes dropped by 27.3% week-on-week to 337 million shares, while the average value traded decreased by 41.7% to USD 56 million.
The anticipation of a policy rate cut, combined with the ongoing results season, suggests a positive outlook for the Pakistan stock market in the coming week. However, investors will need to remain cautious of political developments and economic indicators that may impact market dynamics.