Karachi, September 14, 2024 – The Pakistan Stock Exchange (PSX) is expected to maintain its positive momentum in the upcoming week, beginning September 16, 2024. Analysts at Arif Habib Limited forecast a continuation of the gains seen at the close of the previous week, buoyed by multiple favorable economic factors.
The positive outlook for the PSX is largely driven by easing inflationary pressures, spurred by a decline in international oil prices. This relief is welcomed by investors and has provided some breathing room for businesses dealing with rising operational costs. The ongoing earnings season is also expected to keep certain stocks in focus, as strong corporate results could further fuel investor confidence.
Stock Market Valuations and Outlook
The benchmark KSE-100 index of the PSX is currently 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. This valuation presents an attractive opportunity for investors, especially when combined with the dividend yield of approximately 10.3%, compared to the 5-year average of around 8.2%. These figures suggest that the stock market remains undervalued, offering potential upside for both long-term and short-term investors.
Monetary Policy and Economic Developments
Several key economic developments unfolded during the week, providing further support to the market. The State Bank of Pakistan (SBP) continued its easing of monetary policy, reducing the policy rate by 200 basis points to 17.5%. This marks the first rate cut since April 2020 and has led to a corresponding decline in KIBOR rates by 25 to 119 basis points across various tenors. The move was positively received by market participants, as lower interest rates tend to reduce borrowing costs for businesses, potentially spurring economic growth.
On the international front, progress was made regarding Pakistan’s IMF program, with the country’s name officially added to the IMF board’s meeting agenda for September 25, 2024. This is seen as a crucial step in securing further financial assistance. Additionally, Pakistan’s foreign exchange reserves increased by USD 30 million, reaching USD 9.5 billion, while the Pakistani rupee appreciated against the US dollar by 0.15%, closing at 278.2.
Market Performance
The PSX closed the week at 79,333 points, marking an increase of 435 points or 0.55% on a week-on-week (WoW) basis. Sector-wise, the market saw positive contributions from Fertilizer (161 points), Cement (159 points), Exploration & Production (92 points), Leather (74 points), and Pharmaceuticals (54 points). On the flip side, sectors that contributed negatively included Commercial Banks (-119 points), Automobiles (-115 points), and Power Generation (-80 points).
Notable scrip-wise contributors to the positive performance included EFERT (121 points), OGDC (100 points), SRVI (74 points), UBL (69 points), and LUCK (66 points). Meanwhile, scrips that dragged the market down included MTL (-115 points), MEBL (-85 points), MARI (-85 points), HUBC (-81 points), and HBL (-78 points).
Foreign and Local Participation
Foreign investor selling continued, totaling USD 7.5 million for the week, with major outflows from the Fertilizer sector (USD 3.7 million) and Banks (USD 2.9 million). On the local front, buying was led by individuals (USD 7.2 million), followed by Mutual Funds (USD 4.8 million) and Companies (USD 4.4 million). Average daily trading volumes stood at 606 million shares, a decline of 10.2% WoW, while the average value traded increased by 4.7% WoW to USD 55 million.
With favorable economic developments and corporate earnings likely to drive investor sentiment, the PSX is expected to continue its positive momentum in the coming week. Investors are advised to keep an eye on global economic conditions and corporate results to make informed decisions.