Pakistan Stock Exchange index up 1.65%WoW

Pakistan Stock Exchange remained positive during the week ended on May 10, 2024. The benchmark index challenged its highs and closed the week at the highest ever level of 73,086 points, up 1,183 points or 1.65%WoW gain.

Overall, positivity was driven by progress made with IMF, as its team is scheduled to visit the country this month for finalizing the fund size of next EFF program and setting reform targets before the FY25 budget.

The investment story from Saudi Arabia remained prominent, with a 50-member team having visited the country, and the crown prince also scheduled set to visit shortly.

On the macroeconomic front, workers’ remittances in April 2024 remained robust at US$2.8 billion (up 28%YoY), attributed to the Eid impact and reduced gap between interbank and open market exchange rates.

The current account is expected to remain controlled for the April, with a trade deficit for the month anticipated at US$2.4 billion.

Weekly inflation has been on a downward trend for the past three weeks, and overall monthly CPI for May 2024 is expected below the 15% mark, resulting in real interest rates exceeding 700bps. However, additional taxation in the upcoming budget poses a potential risk to the medium-term inflation targets.

Regarding IMF targets for the FY25 budget, initial impressions suggest PKR1.3 trillion in new taxes, with the rationalization of salaried and business tax slabs, along with the implementation of sales tax on tractors and pesticides.

On the reserves front, with an inflow of US$1.0 billion from the IMF, foreign exchange reserves held by the central bank surged to US$9.12 billion, highest in 22 months.

With an overall positive market landscape, participation also increased by 39%WoW, with the average daily traded volume rising to 717 million shares as compared to 516 million shares a week ago.

On the currency front, PKR appreciated by 0.03%WoW to close at 278.1/US$.

Other major news flows during the week included: 1) Government borrowing touched a record level of PKR6 trillion in 10 months, 2) Government hinted at 27% hike in PSDP, and 3) Government announced to frame new industrial policy.

Leather & Tanneries, Pharmaceuticals, Cable & Electrical goods were amongst the top performing sectors, while, Synthetic & rayon, Fertilizer, and Leasing were amongst the worst performers.

Net selling amounted US$4.7 million, mostly absorbed by Foreigners with a net buy of US$2.7 million.

Top performing scrips of the week were: GLAXO, SRVI, CEPB, PAEL, and HINOON, while top laggards included: IBFL, PGLC, EFERT, FATIMA and FFBL.

With the forthcoming visit of the IMF team, the spotlight will undoubtedly be on the tax targets and reforms communicated by the IMF.

Any announcements about the visit of Saudi crown prince could further enhance positivity among investors.

Additionally, lower CPI numbers would likely pique investors' interest in the upcoming Monetary Policy scheduled just after the FY25 budget announcement.

Despite the market reaching record highs, it still maintains discounted valuations.

Investors are advised to maintain heavy positions in fundamentally healthy companies, particularly those with strong dividend yields.