PSX benchmark index up 2.76%WoW
Pakistan Stock Exchange (PSX) continued its bullish momentum throughout the week ended on October 04 2024. With expectation of further interest rate cut and IMF’s EFF approval the benchmark KSE-100 index gained 2,240 points or 2.76%WoW to close at 83,532 points.
Overall, the bullish sentiments were driven by high dividend yielding sectors that included Fertilizers and E&P, as falling fixed-income yields led to a rerating of these sectors.
CPI dropped down 6.93%YoY in September 2024 since January 2021. Additionally, in the auction held on October 02, the yields for the 6-month and 12-month T-Bills decreased by 334 and 326 bps, respectively.
Trade balance for September 2024 posted US$1.78 billion deficit.
OMCs’ aggregate offtakes were reported at 1.27 million tons in September 2024, up 20%YoY
As against this cement offtakes for September 2024 were reported at 3.67 million tons, down 5%YoY, largely due to subdued domestic demand amid economic slowdown and higher constructions costs.
Average daily trading volume declined 12.1%WoW to 342.3 million shares, from 389.4 million shares traded a week ago.
Foreign exchange reserves held by State Bank of Pakistan (SBP) increased by US$1.2 billion WoW after the receipt of first trance from the IMF to US$10.7 billion as of September 27, 2024.
The PKR largely remained stable against the greenback throughout the week, closing the week at PKR 277.52 to a US$.
Other major news flow during the week included: 1) Pakistan and Russia ink barter deal to boost agri trade 2) Refineries demand action on key issues before upgrades, 3) Pakistan and Malaysia pledge to deepen ties, 4) IPPs talk status remains under wraps and 5) the GoP buys back PKR351 billion treasury bills.
Textile Spinning, Leather & Tanneries, Oil & Gas Exploration Companies, Fertilizer and Tobacco were amongst the top performers, on the other hand, Modarbas, Vanaspati & Allied Industries, Close-End Mutual Funds, Woollen & Inv. Banks/ Inv. Cos/Securities Cos. were amongst the worst performers.
Major net selling was recorded by Foreigners with a net sell of US$26.1 million. Mutual Funds absorbed most of the selling with a net buy of US$26.1 million.
Top performing scrips of the week were: AIRLINK, NCPL, PKGP, PPL, and FFC, while laggards included: TRG, FHAM, INIL, EPCL, and EFUG.
According to AKD Securities, following the approval of the IMF’s executive board and the subsequent receipt of the first tranche of US$1.02bn, market sentiments are poised for improvement.
Additionally, easing inflation with September 2024 CPI reported at 6.93%YoY, coupled with ongoing monetary easing, is expected to keep equities in focus, with the market trading at an attractive P/E of 3.6x and a DY of 13.1%.
The brokerage house recommends the sectors benefiting from monetary easing and structural reforms, particularly high dividend yielding stocks, which are expected to rerate as yields align with fixed income returns.
According to Pakistan’s leading brokerage house, topline Securities, the benchmark KSE-100 index has posted 3.4%QoQ in rupee and 3.7% in US dollar terms in 3Q2024, marking the sixth consecutive quarter in positive trajectory.
Continuation of positive momentum is attributed to: 1) firstly the completion of staff level agreement with IMF at start of 3Q2024, 2) IMF board approval and disbursement of first tranche to State Bank of Pakistan (SBP) at the end of quarter, 3) Inflation entering single digits for the first time since October 2021, 4) reduction in policy rate by 300bps to 17.5%, 5) improvement in country’s credit rating according to major credit rating agencies Moody’s and Fitch, 6) better than expected current account number, which entered surplus in August, and 7) stability in currency amidst strong dollar inflows.
As per Bloomberg data, Pakistan market remained 4th best performer in 2Q2024 with total US$ return of 17% However in 3Q2024 the ranking stood at 66 in World Equity Index.
The continuation of positive momentum in stock market has been accompanied by healthy trading activity with average daily traded volumes in the Cash and Ready market increased by 74%YoY to 490 million shares. The average traded value also jumped by 86%YoY to PKR18 billion/ day during 3Q20204.
The average volumes in the Futures market also increased by 61%YoY and by 8%QoQ to 172 million shares/ day. The average traded value of the same increased by 57%YoY and by 4%QoQ to PKR7.2 billion/ day. Increase on a QoQ basis is due to lower interest rates in 3Q2024.
During 3Q2024, foreigners emerged net sellers of PKR4.68 billion (US$16.8 million) as against net buyers of PKR18.3 billion (US$65.8 million) in 2Q2024. Reversal of positive trend was due to FTSE rebalancing related foreign selling during the quarter which is expected to trail off into 4Q2024 as well.
Investor concerns regarding FTSE rebalancing related selling were mitigated by selling being absorbed by both local and foreign investors and the market maintaining its positive momentum.
On the local front, mutual funds were major buyers with net buy of US$14.2 million followed by Banks and DFIs with net buy of US$7.5 million. Individuals were the biggest net buyers to the tune of US$45.8 million. However, Insurance and Companies remained sellers of US$15.5 million and US$15.5 million respectively in the quarter under review.
Market outlook
State Bank of Pakistan (SBP) in its last Monetary Policy Committee (MPC) held on September 12, 2024, decided to reduce the policy rate by 200bps to 17.5%. This was the third consecutive rate cut announced by central bank in response to receding inflation readings in past few months due to high base effect, falling food prices and comfortable external position.
Interest rate: The Committee noted that the pace of disinflation has exceeded committee’s earlier expectations due to delay in implementation of planned increases in administered energy prices and favorable movement in global oil and food prices. Since inflation is expected to remain in single digit in next quarter, further policy rate cut cannot be ruled out.
Rating Revision: IMF’s executive board approved Pakistan’s US$7 billion Extended Fund Facility (EFF) on September 25, 2024. Following this approval, an upgrade of Pakistan’s rating by international agencies like Moody’s, Fitch, and S&P cannot be ruled out.
MSCI Inflows: MSCI Semi-Annual Index Review is scheduled for Nov 07, 2024 where we are expecting further increase in weight of Pakistan due to continued bull-run of market.
Commodity Prices: Outlook of Pakistan’s economy will also be dependent upon commodity prices going forward. Brent oil prices have declined from average of US$85/bbl in 2Q2024 to US$79/bbl in 3Q2024. The petroleum group makes up a major portion of Pakistan’s imports and was 30% of total imports in 2MFY25.