Investors in the Pakistan Stock Exchange (PSX) are set to closely monitor the upcoming week as all eyes turn toward the highly anticipated Monetary Policy Committee (MPC) decision. Analysts at Arif Habib Limited expect a further interest rate hike, which could have significant implications for the stock market.
The market is currently weighed down by concerns over the delay in securing a deal with the International Monetary Fund (IMF). The IMF has requested assurances of external financing from friendly countries such as Saudi Arabia and the UAE to close Pakistan’s balance of payments gap. These commitments are crucial to resuming the IMF program and providing much-needed stability to the financial markets. Should these commitments materialize, the IMF program will get back on track, potentially improving investor sentiment at the stock index.
The KSE-100 index, the benchmark for the PSX, is currently trading at a price-to-earnings ratio (PER) of 3.7x for 2023, which is significantly lower than the Asia Pacific regional average of 11.5x. In contrast, it offers a strong dividend yield of 11.4 percent, far exceeding the 3.1 percent offered by other regional markets.
This past week, trading activity in the market remained subdued, largely driven by uncertainty surrounding the IMF program. The Pakistani Rupee (PKR) depreciated slightly against the US Dollar, losing PKR 0.59 or 0.21 percent week-on-week (WoW), closing at 283.79/USD. The State Bank of Pakistan’s reserves also saw a reduction of $345 million WoW, settling at $4.2 billion.
Despite these concerns, the KSE-100 index managed to close the week at 40,001 points, up by 58 points or 0.15 percent WoW. Sector-wise, positive contributions came from Automobile Assemblers, Fertilizer, Cement, Insurance, and Glass & Ceramics, adding modest gains to the index.
However, negative contributions were recorded in Miscellaneous sectors, Commercial Banks, Power Generation & Distribution, Food & Personal Care Products, and Oil & Gas Exploration Companies. Scrip-wise, top performers included MTL, EFERT, FFC, SYS, and POL, while PSEL, ENGRO, BAHL, TRG, and PPL posted negative contributions.
Foreign investors turned sellers this week, recording a net sell of $0.3 million, compared to a net buy of $0.5 million the previous week. Major sell-offs were seen in Fertilizer and Textile sectors. On the domestic front, Banks/DFIs and companies were active buyers, purchasing $4.6 million and $4.5 million worth of stocks, respectively. Average daily trading volumes dropped 31 percent WoW, while the average value of traded shares fell by 6 percent.
As the market moves into the new week, investors will be keenly awaiting the MPC’s decision and developments regarding the IMF deal, which will likely set the tone for market activity.