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Pakistan stock market performance and outlook in 2020

Calendar year 2020 has been a topsy-turvy ride of global economy, financial markets due to global pandemic and Pakistan has been no exception. Overall, the KSE-100 Index has remained flat (+0.18%) on CYTD basis while index heavyweight sectors have largely underperformed broad market due to lower oil prices and interest rates which limit earnings of two-key heavyweight sectors, E&Ps (-1,161 points) and Banks (-987 points) while Cements (+1,566 points), Technology (+800 points) and Pharmaceuticals (+311) contributed positively to the index as the government introduced construction package and investors focused towards technology and healthcare during pandemic. Index heavyweight sectors have also remained in pressure due to persistent foreign selling (CYTD net selling of US$455 million) in index heavyweights. Due to increased volatility and uncertainty, trading activity increased with average daily traded volumes of 313 million shares.

Pakistan equities started the year on strong note in anticipation of monetary easing after MPC kept policy rate unchanged at 13.25%, which strengthened case of peak of interest rates with net foreign buying in January 2020. CPI inflation reading of January touched a peak of 14.6%YoY, while Pakistan was kept in grey list in FATF review which triggered bearish spell at Pakistan Stock Exchange (PSX). First coronavirus case in Pakistan was reported on February 26, which continued to spread at fast pace leading government to impose lockdown in line with other countries across the globe.


Lockdowns spread across the world in effort to control widespread of the virus which translated into huge volatility in global equity markets while free fall continued at PSX as KSE-100 index marked a low of 27,267 points on March 26. Policymakers introduced relief measures on fiscal as well as monetary front during intense lockdowns as Prime Minister announced Rs1.3 trillion fiscal packages, while central bank introduced multiple discounted facilities and reduced interests to 11% in early phase of monetary easing. With intense economic meltdown and rising case, later in April, State Bank of Pakistan (SBP) reduced policy rate by further 2% to 9%, which also coincide with G20 relief plan where emerging economies like Pakistan received deferment of debt. These relief measures were also reflected in valuations at PSX with steep rebound, which continued as SBP further cut policy rate to 8% in May. Sharp rebound in stock market was mainly led by construction sector as the Government allowed construction sector to remain functional with a focus on keeping up livelihood of lower income segment of the country.

Moreover, Government also lifted lockdown nearly after 55 days in May, but continued to imposed smart lockdown in areas where infection ratio was high that helped boost overall investor sentiment. Moreover, Government introduced Federal Budget FY21 with no new taxes while it turned out to be a non-event for the market. MPC further eased benchmark interest rates by bringing down policy rate to 7% in June. Moreover, infection ratio peaked in June after which economy gradually started opening up while economic indicators improved with consolidation in overall economy. Pakistan’s GDP growth fell into negative territory while savings-investment gap reduced that was reflected by current account surplus of US$424 million in July.

Post July, the Government focused on resolution of circular debt and signed MoU with IPPs where IPPs pursued “lose to win” strategy and agreed to reduce tariffs on settlement of overdue receivables. In mid August, Supreme Court ruled out judgment on GIDC in favor of government which supported sentiment for textile and other industrial sectors. Current account remained surplus in August as remittances were reported US$2 billion which helped overall balance of payment as well. On the FATF front, Pakistan was declared largely complaint in October review, but still kept in grey list until next review scheduled for February 21. Post September, political uncertainty weighed in on PSX as Pakistan Democratic Movement (PDM) started to hold rallies against PTI government in various cities. Second wave of coronavirus cases has also kept KSE-100 Index range bound with infection ratio rising above 7% (from bottom of 0.5%), while government again imposed smart lockdown and closed down education institution as active cases crossed 40,000 mark.


We expect Pakistan Stock Exchange (PSX) to sustain positive momentum at year end particularly index heavyweights, Banks and E&Ps, with reversal in broad macroeconomic theme with progress on the vaccine front globally. Reducing loan stress concerns could also open up bumper dividends in banking stocks along with full year 2020 results. Reversal in oil prices would be beneficial for E&Ps and OMCs, while any positive development on circular debt front could unlock significant upside.

*Sateesh Balani is currently working with Ismail Iqbal Securities as Director Research

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