KARACHI: The stock market likely to cross 51,000 points during year 2020 owing to growth in earnings and justified price to earning ratio, analysts said on Monday.
The analysts at Arif Habib Limited in its report on Pakistan Strategy 2020, said that Pakistan equity market is expected to generate a total return of 25 percent during 2020.
They expect that the benchmark KSE-100 index of Pakistan Stock Exchange to reach 51,000 points by December 2020. The index target mapping methodology included: earnings growth; justified PER; and target price mapping.
The analysts believed that the balance of payments front is quite manageable now with continuous decline in imports, thanks to Pak Rupee depreciation and taxation measures at large to curb imports, along with several inflows planned for the next year tagged with hot money flows which are expected to lead towards continuous increase in reserves of State Bank of Pakistan (SBP).
The analysts said that the country has successfully managed to attract foreign investment in lucrative short term government papers. High yields coupled with strengthening currency have helped lure over $1.2 billion foreign investment in treasury bills, which is unprecedented in history. Further, this shows the confidence of foreign investors in the local currency parity and economic reforms, and could also trigger equities flows in the country in 2020.
Earnings growth in 2020 is estimated to be 14.4 percent, the double digit growth is attributable to earnings growth in heavy weight including commercial banks (41 percent), power (53 percent), fertilizers (12 percent) and E&P (10 percent), which have a cumulative around 61.7 percent weightage in the KSE-100 index. Higher net interest income coupled with stellar earning rebound in large banks shall stem growth in the banking sector, whereas power sector profitability mainly stem from CoD of HUBC’s 130MW coal-based power plant.
The analysts said that the local bourse is expected to amass strong returns in 2020 supported by ongoing PER re-rating hypothesis. The analysts view that firmness in external sector, stable foreign currency outlook, hot money inflows, increase in SBP foreign exchange reserves in external sector and strong earnings growth of over 14 percent will re-rate the market PE to ites mean average of 8.6x (14-year).