PSX benchmark index up 3.5%WoW

Pakistan Stock Exchange (PSX) continued its positive momentum, buoyed by last week’s key catalysts of interest rate cut and Pakistan’s inclusion on the IMF executive board agenda. Consequently, the benchmark index reached an all-time high, closing at 82,074 points with a weekly gain of 2,741 points, up 3.5%WoW.

Overall, the bullish sentiment was predominantly driven by high-dividend-yielding sectors including Banks, E&P, and Fertilizers, as falling fixed-income yields led to a rerating of these sectors.

Current account balance for August 2024 posted a surplus of US$75 million, largely underpinned by a 40%YoY increase in remittances. Additionally, exports also remained higher during the month, with growth largely supported by an annual increase of 13% in Textile and 40% in Food exports.

Subsequently, LSMI activity also rose by 2.4%YoY in July 2924, with Textiles and Food driving output expansion.

The GoP reduced POL prices for the fourth consecutive time, lowering these by over PKR80/liter compared to same period last year. This consistent decline in POL prices is expected to further alleviate inflationary pressures.

The rejection of all bids in recent T-Bills auction and the less-than-target acceptance in the PIB auction, along with declining yields, would potentially shift liquidity toward equities.

On the international front, the US Federal Reserve cut interest rates after four years by 50bps.

Market participation declined by 22.6%WoW, with the average daily traded volume dropping to 469 million shares from 607 million shares in the earlier week.

On the currency front, PKR largely remained stable against the greenback, closing the week at 277.8/US$.

Other major news flows during the week included: 1) ADB assures Pakistan US$2 billion annually in loans, 2) FDI rises to US$350 million in first two months of the current financial year, 3) Power demand slumps 17%YoY in August, and 4) In PIBs auction PKR111 billion was raised against PKR200 billion target.

Top performing sectors were Pharmaceuticals, Commercial Banks, and Fertilizer, while Woollen, Cable & Electrical Goods, and Engineering were amongst the laggards.

Major net selling was recorded by Foreigners with a net sell of US$23.2 million. Mutual Funds absorbed most of the selling with a net buy of US$15.5 million.

Top performing scrips of the week were: MARI, SHFA, HBL, MEBL, and MCB, while laggards included: SML, YOUW, WFUG, TGL, and PIBTL.

IMF Executive Board’s approval, along with continued monetary easing would keep equities in focus, with the market trading at an attractive P/E of 3.7x and a DY of 13.2%. The completion of the FTSE rebalancing would further boost investor confidence.

AKD Securities recommends sectors benefiting from monetary easing and structural reforms, particularly high-dividend-yielding stocks, which are expected to relate as yields align with fixed-income returns.

PSX benchmark index posts 0.55%WoW gains

During the week ended on September 13, 2024, the benchmark index of Pakistan Stock Exchange experienced volatility early in the week but gained momentum as investors anticipated a rate cut.

On Thursday, the Monetary Policy Committee (MPC) surprised with a 200bps reduction amid a higher than expected fall in inflation, lowering the policy rate to 17.5%. This move boosted investor sentiment.

The IMF spokesperson revealed that Pakistan has secured necessary financing assurances from development partners and will be discussed at the executive board meeting scheduled for September 25, 2024, further enhancing investor confidence. The rate cut invigorated the cyclical sector, resulting in the benchmark index closing at 79,333 points, a gain of 435 points, up 0.55%WoW.

However, a mini budget is on the cards to generate an additional PKR650 billion in tax collections, if FBR fails to meet its collection targets.

Workers remittance for August 2024 were reported at US$2.94 billion, up 40.5%YoY.

The average daily traded volume declined to 606.74 million share from 675.46 million shares a week ago, down 10.2%WoW.

On the currency front, PKR largely remained stable against the greenback throughout the week, closing the week at PKR278.14/US$.

Other major news flows during the week included: 1) FBR considering traders’ new proposal to collect advance tax, 2) Pakistan and Russia sign MoU for agricultural cooperation, 3) Petrol price likely to be slashed further by PKR12, 4) Privatization of PIA anticipated by end of October and 5) T-Bills outflows jump amid uncertainty.

Leather & Tanneries, Woollen, Tobacco, Pharmaceuticals and Property were amongst the top performing sectors, while the laggards included Leasing companies, Modarabas, Automobile parts & Accessories, Refinery & Real Estate Investment Trust.

Major net selling was recorded by Foreigners with a net sell of US$7.54 million. Individuals, mutual funds, and companies absorbed most of the selling with a net buy of US$16.38 million, respectively.

Top performing scrips of the week were: 1) SRVI, EFUG, PAKT, BNWN, and HCAR, while to laggards included MTL, PGLC, KOHC, IGIHL, and THALL.

IMF executive board approval, along with continuation of monetary easing, would keep equities in investor radar, currently trading at P/E of 3.6x and DY of 13.5%.

Aforementioned factors, along with an improving external account position and a better country credit rating, would keep foreigners’ interest alive.

AKD Securities recommends sectors that benefit from monetary easing and structural reforms. However, modest economic recovery may limit the upside for cyclicals.