Karachi, August 24, 2024 – Analysts at Arif Habib Limited are optimistic that the positive momentum will continue at the Pakistan Stock Exchange (PSX) in the coming week.
They believe that any developments related to the International Monetary Fund (IMF) will likely boost investor sentiment further, potentially sustaining the upward trend in the market.
The analysts noted that the ongoing earnings season is expected to drive select stocks higher, with investors focusing on companies anticipated to report strong results. “The market is positioned to maintain its positive momentum, particularly if there are favorable updates regarding Pakistan’s negotiations with the IMF,” the analysts stated.
Currently, the benchmark KSE-100 index of the PSX is trading at a price-to-earnings ratio (PER) of 4.1x for 2025, which is significantly lower than its 5-year average of 5.9x. Additionally, the index is offering an attractive dividend yield of 10.3%, compared to its 5-year average of 8.2%. These metrics suggest that the market is relatively undervalued, presenting a potential opportunity for investors.
Market Sentiments and Economic Indicators
The week began with the market under slight pressure due to Pakistan’s absence from the IMF Executive Board’s schedule for August 2024, which raised concerns about the timely disbursement of the IMF tranche. However, sentiments improved midweek when the Finance Minister announced progress in talks with the IMF, indicating optimism about securing approval from the Executive Board by September 2024. This announcement was seen as a positive signal by the market, leading to increased investor confidence.
Further optimism was fueled by a Treasury bill (T-bill) auction held later in the week, where cutoff yields dropped by 74 to 148 basis points across all tenors. This decline in yields is interpreted as a sign that the market anticipates a rate cut in the upcoming monetary policy meeting scheduled for September 2024. Such a cut could further enhance market sentiment by reducing the cost of borrowing, potentially stimulating economic activity.
Additionally, the State Bank of Pakistan’s (SBP) foreign exchange reserves saw a modest increase of USD 19 million week-on-week (WoW), reaching USD 9.3 billion. The Pakistani rupee also remained stable against the US dollar, trading at 278.5. The market closed the week at 78,801 points, marking an increase of 756 points or 0.97% WoW.
Sector-wise Performance and Market Trends
Several sectors contributed positively to the market’s performance this week. Notable contributions came from Commercial Banks (369 points), Fertilizer (177 points), Cement (134 points), Leather (79 points), and Refinery (47 points). Conversely, some sectors weighed on the market, including Automobile Assemblers (-40 points), Food & Personal Care Products (-34 points), Technology (-20 points), Miscellaneous (-11 points), and Exploration & Production (-10 points).
On a scrip-wise basis, positive contributors included Fauji Fertilizer Company (FFC) with 197 points, National Bank of Pakistan (NBP) with 164 points, United Bank Limited (UBL) with 123 points, Service Industries Limited (SRVI) with 79 points, and Oil & Gas Development Company (OGDC) with 75 points. In contrast, Mari Petroleum Company Limited (MARI) detracted 108 points, Habib Bank Limited (HBL) 65 points, Millat Tractors Limited (MTL) 43 points, Systems Limited (SYS) 41 points, and Engro Corporation (ENGRO) 35 points.
Foreign and Local Market Dynamics
This week, the market saw net foreign selling amounting to USD 0.62 million, a stark contrast to the net buying of USD 5.26 million recorded the previous week. Major selling was observed in the Fertilizer sector (USD 0.92 million) and other sectors (USD 0.92 million). On the local front, mutual funds emerged as significant buyers, purchasing USD 3.5 million worth of shares, followed by banks and Development Financial Institutions (DFIs) with purchases also totaling USD 3.5 million.
The average trading volumes for the week were 578 million shares, representing a 4.6% increase WoW. However, the average value of shares traded fell by 25.2% WoW, settling at USD 56 million.
Outlook for the Coming Week
Looking ahead, analysts remain hopeful that the positive momentum will continue, driven by developments related to the IMF and ongoing earnings announcements. Investors will closely monitor any news regarding Pakistan’s discussions with the IMF and the upcoming monetary policy meeting for further cues on market direction. With the current market dynamics and economic indicators, there is cautious optimism that the PSX will maintain its upward trajectory.
