Pakistan Stock Exchange posts 2.3%WoW gain

Pakistan Stock Exchange began the week ended on October 11, 2024 on a strong positive note, sustained its momentum through the initial days, with the benchmark index rising to a record high of 85,669 points on Wednesday. However, concerns in the power sector amid the termination of IPP contracts, coupled with some profit-taking in the last two sessions, dragged the index to close at 85,483 points on Friday, posting an increase of 1,951 points or 2.3%WoW gain.

Overall positive sentiments were largely driven by improved liquidity in equity market, as local funds continued to shift flows from fixed-income assets due to declining interest rates.

Investors’ optimism was further bolstered by the visit of a Saudi delegation, which resulted in the signing of 27MoU’s worth US$2.2 billion, and discussions surrounding the Reko-Diq stake sell.

The GoP finally terminated Power Purchase Agreements (PPA) with five Independent Power Producers (IPPs) during the week, with discussions regarding 17 more IPPs lined up for future negotiations to shift from Take-or-pay model to Take-and-pay.

On the macroeconomic front, workers' remittances inflow remained robust in September 2024, totaling US$2.85 billion or 29%YoY increase.

While the trade deficit for the month was reported at US$1.78 billion, current account is expected to remain stable, with a potential surplus for the period.

Moreover, in efforts to address the tax gap from the 1QFY25 deficit, GoP communicated likely tax hikes to the IMF, particularly on direct imports (mainly machinery) and advanced import taxes.

Furthermore, a tax on agriculture is expected to be implemented from July 2025, according to the Finance Minister.

Amid the positive momentum, market participation also surged by 51.3%WoW, with average daily traded volume rising to 518 million shares, from 342 million shares in the earlier week.

Foreign exchange reserves held by SBP increased by US$106 million WoW to US$10.8 billion as of October 04, 2024, a 2.5-year high.

Other major news flows during the week included: 1) Public debt in August 2024 surged to PKR70.4 trillion, 2) Task force to discuss mechanism for 35% gas sale to private firms, 3) Rebasing of electricity tariffs likely from January 01, 2025, and 4) Car sales surged by 24%YoY in September 2024.

Transport, Modarabas, and Woollen were amongst the top performing sectors while the laggards included: Power Generation & Distribution, Vanaspati & Allied industries, and Paper & board.

Major selling was recorded by Foreigners with a net sell of US$18.9 million. Mutual Funds absorbed most of the selling with a net buy of US$22.6 million

Top performing scrips of the week were: PTC, PSO, ATLH, LCI, and PPL, while top laggards included: HUBC, KOSM, NCPL, YOUW, and LUCK.

Going forward, the market is expected to remain positive, supported by declining interest rates, likely to continue driving flows towards equity market.

Despite recent highs, market remains attractive, trading at P/E of 3.7x and a dividend yield of 12.7%.

Pakistan’s leading brokerage house, AKD Securities recommend focusing on sectors that stand to benefit from monetary easing and structural reforms, particularly high-dividend-yielding stocks, which are expected to rerate as yields align with fixed-income instruments. Top picks include: OGDC, PPL, MCB, UBL, MEBL, FFC, PSO, LUCK, MLCF, FCCL and INDU.