Pakistan equities likely to close year on high over improved economic indicators

Pakistan equities are expected to remain bullish in the last 10 days of the year due to the disbursement of a loan tranche by the International Monetary Fund (IMF), monetary easing, minimal flood impact, improved credit ratings by global agencies, and falling fixed-income yields, according to analysts.

The market continued its bullish momentum during last week, driven by investor optimism following the surprise 50bps rate cut by the State Bank of Pakistan on Monday, against market expectations of a status quo.

The sentiment was further boosted after the current account posted a $100 million surplus in November.

The benchmark KSE-100 index inclined to achieve its highest-ever closing on Thursday at 171,960 points. However, following some profit-taking on the last trading day, it closed the week at 171,404 points, up 1,539 points or 0.91% during the outgoing week.

The average volume of the KSE All-Share Index decreased by 5% to 977 million shares. Whereas KEL, HUMNL and DSL topped the volume charts with 63 million, 47 million, and 32 million shares, respectively.

The market capitalization of the KSE-ALL Index increased by 0.75% to USD 66,050 million. The sector-wise market capitalization increased week-on-week in the power (5.47%), banks (3.73%), and tobacco (2.90%) sectors.

During the week, foreigners were the net sellers of $12.66 million. The major selling was observed in banks ($10.12 million) and E&P ($1.06 million), while net buying was seen in power ($1.79 million).

On the local side, individuals ($16.68 million) and mutual funds ($2.38 million) were the major buyers, while insurance companies were the major sellers ($8.15 million).

According to an analyst at AKD Securities, investor sentiment is expected to further improve, driven by the likelihood of increased foreign portfolio and direct investment flows, amid improved relations with the United States and Saudi Arabia.

This outlook is supported by the lack of alternative investment avenues and the attractive valuation of local equities, with the KSE-100 trading at a multiple of 8.1x while offering a dividend yield of 6.5%.

An analyst from Spectrum Securities said that we expect the market to continue its bullish momentum & achieve another milestone in the coming days, following the December-end financial results.

The cut in the policy rate is likely to have a positive impact on corporate earnings, especially for debt-heavy companies, by reducing borrowing costs and increasing profit margins.

According to an analyst from Arif Habib Ltd, sentiment is likely to remain largely sustained going forward. However, with the rollover scheduled for next week, the market may face some selling pressure.

The KSE-100 Index is currently trading at a PER of 8.67x against its 15-year average of 8.80x, offering a dividend yield of ~5.61% versus the historical average of ~6.18%