Karachi, March 2, 2024 – Analysts at Arif Habib Limited are anticipating positive sentiments to prevail in the Pakistan stock market in the coming week, citing the ongoing government formation process and a significant drop in inflation as key factors contributing to the optimistic outlook.
In their weekly review, analysts highlighted the positive impact of political developments, emphasizing that the process of establishing a new government, expected to conclude by next week, is likely to boost investor confidence. The political stability resulting from the formation of a new government is seen as a catalyst for positive sentiments among investors.
Furthermore, the recent decline in inflation to a 20-month low is expected to play a pivotal role in bolstering investor sentiments. As of February 2024, the inflation rate stands at 23.1 percent, marking a notable decrease. The lower inflation figures are anticipated to contribute to an optimistic atmosphere in the stock market during the upcoming week.
While the market is expected to remain positive, analysts caution that investors should carefully monitor ongoing developments and be mindful of potential fluctuations in the market.
The benchmark KSE-100 index of the Pakistan Stock Exchange (PSX) is currently trading at a Price-to-Earnings Ratio (PER) of 4.2x for the year 2024. This is compared to its 5-year average of 5.9x, offering a dividend yield of approximately 10.5 percent, higher than its 5-year average of around 7.7 percent.
The market has recently demonstrated positive momentum, witnessing a surge from 62,000 to 65,000. This surge reflects investor optimism, particularly amid the ongoing government formation process. The swearing-in of National Assembly members and the impending Prime Ministerial election have contributed to the positive response from the market, signaling expectations of political stability and effective governance.
On the economic front, the State Bank of Pakistan’s forex reserves experienced a slight decrease by USD 63 million, reaching USD 7.95 billion, down from USD 8.0 billion a week earlier. Additionally, the Federal Board of Revenue (FBR) collected PKR 681 billion in February 2024, falling short of the assigned target by PKR 33 billion.
The closing exchange rate of PKR against USD stood at 279.19, appreciating by PKR 0.17 (0.06 percent) week on week. The overall market closed at 65,326 points, marking a significant climb of 2,510 points (4.0 percent) week on week.
Sector-wise positive contributions were led by Commercial Banks (806 points), Fertilizer (777 points), Oil & Gas Exploration (280 points), Auto Assembler (184 points), and Cement (159 points). On the flip side, negative contributions came from Technology (37 points), Pharmaceuticals (28 points), Leather & Tanneries (24 points), and Cable and Electrical Goods (11 points).
Scrip-wise, positive contributors included ENGRO (279 points), EFERT (211 points), MEBL (182 points), MTL (160 points), and MARI (160 points). Meanwhile, negative contributions were seen from TRG (51 points), OGDC (37 points), SRVI (24 points), PAEL (11 points), and ABOT (11 points).
Foreign buying continued during the week, amounting to USD 10.5 million compared to a net buy of USD 2.9 million in the previous week. Major buying was observed in Commercial Banks (USD 4.0 million) and other sectors (USD 3.4 million). On the local front, selling was reported by Banks/DFIs (USD 6.4 million) followed by Insurance Companies (USD 3.7 million). Average volumes reached 419 million shares, up by 24 percent week on week, while the average value traded settled at USD 56 million, reflecting a 23 percent increase week on week.
