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.
The key scrips of KSE-100 index that outperformed market in
3Q2024 included National Bank (NBP) up 62%, Mari Petroleum (MARI) up 44%, and
Fauji Fertilizer (FFC) up 42%.
Key sectors that outperformed market during the quarter
included Jute, Pharmaceuticals and Transport.
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.
