Analysts have expressed cautious optimism about a potential recovery at the Pakistan Stock Exchange (PSX) in the upcoming week, following a sharp decline in the market. While the short-term outlook appears positive, experts remain wary of the volatile nature of the market, which has experienced significant fluctuations in recent days.
The analysts at Arif Habib Limited are hopeful that the PSX will see a continuation of its recovery starting December 23, 2024, after the recent downturn. This optimism for the PSX stems from the fact that many stocks are now trading at attractive valuations, which could encourage investor interest.
Currently, the benchmark KSE-100 index of the PSX is trading at a price-to-earnings ratio (PER) of 5.9x for 2025, significantly lower than its 10-year average of 8.2x. This offers a dividend yield of approximately 8.1%, compared to its 10-year average of around 6.5%, suggesting that stocks are undervalued, making them appealing for long-term investors.
The week began on a promising note, with the State Bank of Pakistan (SBP) announcing a 200-basis-point rate cut, reducing the policy rate to 13%. This decision was expected to ease financial conditions and potentially stimulate market activity. Additionally, Pakistan reported its highest current account surplus in a decade, amounting to USD 729 million in November 2024, a notable turnaround from the USD 148 million deficit recorded in the same month last year. However, the positive momentum did not last long. By midweek, the market took a sharp downturn, with two consecutive historic declines of approximately 3,700 points on Wednesday and 4,800 points on Thursday. This drop was largely attributed to mutual fund redemptions and year-end profit-taking by institutional investors, which dampened market sentiment.
Despite the midweek losses, the market showed some resilience on the final day, with the KSE-100 index closing at 109,513 points. Meanwhile, yields on Pakistan Investment Bonds (PIBs) across various tenors saw a decrease of 4-55 basis points, reflecting a softer interest rate environment. On a positive note, the SBP’s reserves increased by USD 31 million, reaching USD 12.1 billion, offering some stability. At the end of the week, the Pakistani Rupee (PKR) stood at 278.42 against the US Dollar, showing a modest depreciation of 0.08% week-on-week.
Overall, the PSX closed the week at 109,513 points, marking a decline of 4,789 points or -4.19% week-on-week. Sector-wise, significant negative contributions came from Oil & Gas Exploration, Fertilizer, Cement, Commercial Banks, and Technology & Communication sectors. On the positive side, Oil Marketing Companies (OMCs), Cable & Electrical Goods, and Power sectors contributed to the index’s recovery.
Individual stocks such as MARI, LUCK, FFC, PPL, and ENGRO were among the major negative contributors, while PSO, HUBC, INDU, ATRL, and BAFL saw positive contributions.
Foreign investors continued their selling spree, with net foreign outflows reaching USD 11.6 million, compared to a net sell of USD 0.9 million the previous week. The selling pressure was mainly concentrated in the Energy & Power (E&P) sector and Banks. On the local front, buying interest was observed from individuals and domestic banks, with net buys totaling USD 25.8 million and USD 10.5 million, respectively.
Trading volumes averaged 1.19 billion shares, down 19.1% week-on-week, while the average value traded increased by 10.2% week-on-week, reaching USD 218 million. While the market showed some signs of recovery, analysts are cautious, noting that the volatile nature of the market could pose challenges in the coming weeks.