PSX poised to extend record-breaking run on IMF review, corporate earnings

Pakistan Stock Exchange (PSX) soared to a record high level during the past week, boosted by positive economic and political developments, and is expected to extend its rally if the talks between the IMF review mission and Pakistani officials conclude successfully.

The PSX benchmark KSE-100 index gained 4.3 percent in the week ending on Nov. 3, 2023, surpassing its previous peak of 52,876 points that was last seen in May 2017. The market closed at 53,123 points, increasing by 2,179 points week-on-week.

The market was supported by a series of favorable news, such as the central bank keeping the policy rate unchanged at 22 percent, the arrival of the IMF mission to review the $710 million tranche under Stand-By Arrangement (SBA), strong corporate earnings, and the announcement of the general election date on Feb. 8, 2024.

"The local bourse exceeded its all-time high level of 52,876 that was last seen in May 2017. The week began with the SBP maintaining policy rate at 22 percent, showcasing that inflation has peaked and is anticipated to ease off in the near future", Arif Habib Limited, a brokerage house, said in its weekly report.

The market also welcomed the federal cabinet's approval of a much-awaited increase in gas tariffs, a key condition for the IMF review. The International Finance Corporation, a member of the World Bank Group, revealed a $1.5 billion investment strategy for Pakistan, aimed at supporting the country's economic recovery and resilience. The tax revenue collection was recorded at Rs2.8 trillion during the first four months of this fiscal year, marking a jump of 28 percent year-on-year. Moreover, the trade deficit narrowed by 4.5 percent year-on-year to $2.1 billion in October 2023, indicating an improvement in the external balance.

The political uncertainty also eased after the Election Commission of Pakistan (ECP) announced the election date, which cleared the ambiguities on the political front. The market is likely to remain upbeat in the run-up to the polls, as investors expect a smooth transition of power and continuity of policies. During the outgoing week SBP’s reserves rose by $ 14 million, reaching $ 7.5 billion and local currency closed at 284.31 against the greenback, depreciating by 3.74 or 1.31 percent week-on-week.

The sector-wise positive contributions came from Commercial Banks (375pts),) Power Generation & Distribution (354pts), Fertilizer (265pts), Cement (237pts) and E&P (202pts). Meanwhile, the sectors which mainly contributed negatively were Technology & Communication (7pts), and Automobile Parts & Accessories (3pts). Scrip-wise positive contributors were HUBC (343pts), LUCK (147pts), MEBL (122pts), UBL (103pts), and ILP (96pts). Meanwhile, scrip-wise negative contributions came from TRG (58pts), KEL (13pts), BOP (12pts), EPCL (6pts), and FATIMA (4pts).

The foreign investors were net buyers during the week, with a net inflow of $1.4 million, compared to a net outflow of $3.5 million last week. The major buying was witnessed in all other sectors ($2.0 million) and exploration and production ($0.8 million). On the local front, selling was reported by banks and development finance institutions ($3.0 million) followed by broker proprietary trading ($0.7 million). The average volumes arrived at 450.5 million shares, up by 23 percent week-on-week, while the average value traded settled at $52.2 million, up by 14 percent week-on-week.

The brokerage house anticipated that the market would maintain the positive momentum in the upcoming week, if the IMF review goes smoothly and the SBA is approved. "The market will be closely monitoring the developments in that regard, as well as the corporate results and the macroeconomic indicators."