Pakistan Stock Exchange from the beginning of the October has witnessed one way ride-just going up following some key changes surfacing on the financial horizon but the main factor attributed by most of the analysts have been the finalization of the election date, which would end political uncertainty and smooth transition to help build confidence of the general investors.
The index in over a month period has recorded a tremendous gain and registered a rise of 6800 points or almost 15 percent with market capitalization soaring by Rs 800 billion. The index during the session made an intraday high of 53263 points, breaking the previous record high of 53127 points attained on May 25, 2017. This shows that the index has climbed considerably or took six and a half years to recover the old mark where the market capitalization registered an increase to $27 billion which if compared to 2017 level is far below the $100 billion mainly because of the rupee depreciation which shed weight because of delay in getting loans from the IMF, continuous payment of debt payments, lower exports and remittance and higher imports. In 2017 if somebody wanted to buy one dollar, they had to spend nearly Rs 104.86 while today the rate has been around Rs 284.
Pakistan Stock Exchange (PSX)
The rally picked up at the Pakistan Stock Exchange from the government’s drive to launch a crackdown against the hundi and hawala operators which helped restore the confidence signaling investors to put the economy on track. The rupee which touched the lowest of Rs 307 at interbank and Rs 333 at the open market with the improvement and trimming of dollar value led to transfer of funds from greenbacks to Pakistan Stock Market. Another factor explained in the market was that crackdown also led to fear amongst the gold traders. Eyes were glued that soon the rate would touch Rs 270,000 per tola. However, a month ago a meeting was called where members of gold traders and authorities attended where several questions were raised about the gold buying and selling. This resulted in improvement in the liquidity of the capital market as several investors in fear of investigation sold their gold holdings and diverted their funds to the equity market.
The gold price plunged from the high of Rs 239,500 to somewhere around Rs 195,000 per tola where official rates from Sarafa Bazar Association were halted on the pretext that the settlement of buying and selling has been in process. Moreover, the bullion market also faced closure as several dealers moved out from the trade until the dust settled. The cautious approach and lesser buying and selling of gold forced several investors to place fresh deals at the local stock market.
The journey of the stock market was backed by the attractive corporate results where several companies showed sizable earnings with healthy payouts boosting the investors’ confidence. After tracking the results which arrived so far the profitability of the KSE-100 index continues to soar to new heights, posting a robust growth of 46 percent in the nine months of 2023. The growth in profitability during the period was attributed to a massive jump of 97 percent in earnings of banks to Rs 400 billion, about 41 percent rise was recorded in fertilizer group to Rs 74 billion and while exploration sector boosted by 55 percent to Rs 340 billion.
On a quarter basis, KSE-100 profitability climbed up by 66 percent to Rs 475 billion attributable to growth in earnings of Banks, Fertilizer, and Cement. Following the healthy results sectors distributed good dividends to their shareholders. The commercial Banks sector dividend posted a surge of 96 percent to Rs 153 billion amid robust profitability growth.
It is pertinent to mention that nine months of 2023 dividend amount surpassed the dividend paid by the companies in the whole of 2022. The dividend of the fertilizer sector witnessed a growth of 47 percent to Rs 61 billion. The rise in dividends is witnessed due to a 39 percent higher dividend announced by ENGRO followed by 47 percent growth in EFERT dividends. The dividend paid by the Fauji Fertilizer also increased by 27 percent during nine months of 2023.
Forthcoming General Election
Abdul Azeem, head of research at Spectrum Securities said that the prevailing landscape in the financial markets is marked by reduced political uncertainty, a consequence of the forthcoming general election date announcement. “This, coupled with the optimistic outlook for economic resurgence post the IMF review, a discernible descent in interest rates, and a state of equilibrium in exchange rates, has buttressed investor sentiment”, he said.
Favorable outcomes aligned with expectations sustain prevailing trajectories, while any subpar performance below anticipated levels can markedly influence market dynamics. Presently, investors are harboring sanguine expectations for forthcoming developments. of the future, he said.
Abdul Azeem said that the sustainability of market dynamics is inextricably tied to the realization of these expectations. In the current milieu, the bedrock of market sentiment rests upon factors such as Monetary Policy, encompassing aspects like inflation and interest rates, and external account stability, encapsulating the PKR/USD exchange rate parity and foreign exchange reserves.
Nonetheless, it is imperative to acknowledge the lurking risks on the horizon. Potential pitfalls include alterations in the election date, the emergence of inflation figures surpassing projections, a substantial depreciation of the PKR against the USD, delays in the disbursement of IMF tranches, a significant upsurge in international commodity prices, and hindrances in the path to economic recovery”, he said. These elements could potentially cast shadows on the prevailing market optimism.
Ali Farid Chairman KASB KTrade Securities said that there is a lot of domestic liquidity available due to high inflation and high interest rates. The market should rally more. This is exactly what happened in Turkey and Iran after their currencies collapsed and inflation rose.
Tahir Abbas, head of research at Arif Habib explained some of the key factors which helped boosted the market where it gained more than 6800 points in little over a month period such as signing of IMF Stand-by Arrangement amounting $3.0 billion back in Jun’23, Formation of Special Investment Facilitation Council (SIFC) to attract foreign direct investment (FDI) in areas including agriculture, mining, energy and information technology, buyback spree in the listed space where total buy-backs clocked in at Rs 41 billion since May 2022., easing off import restrictions post IMF program and revival of economic activities and currency strengthening (+8.4% regained since low of PKR 307/USD).
He said that revival in the economy could be gauged from the large-scale manufacturing data. After a 14-month period, LSM finally saw positive growth in Aug ’23 showing a rise of 2.5% compared with the same period year ago and also registered a gain on month and month basis by 8.4%. Moreover, GDP will recover on agriculture sector performance, where the key deciding factor has been cotton production. Cotton output increased sharply to 6.794 million bales as compared with 3.733 million bales of the preceding year, which would result in lower cotton imports, reducing burden on Pak/US parity.
Sustainable growth is required in the economy to help maintain the current trend. Any political uncertainty or instability, delay in getting funds from multilateral donor agencies and rising crude oil prices because of international conflict can harm the run-up.
