IMF loan approval to keep Pakistan equities on positive path next week

The Pakistan Stock Exchange (PSX) posted a meagre gain in the outgoing week, as clarity on the political and economic fronts and the expected approval of the loan tranche by the IMF board are likely to further strengthen market sentiment.

The benchmark KSE-100 Index remained volatile throughout the week, ultimately closing on a positive note with a net gain of 408 points.

Sector-wise, investment banks, refineries, and the cement sector were amongst the top performers, up 7.2%, 5.4%, and 3.4%, respectively, during the outgoing week.

On the other hand, automobile parts makers & assemblers, textile spinners, and the fertilizer sector reported a decline of 2.2%, 1.7% and 1.4%, respectively.

Flow-wise, barring debt, major net buying was recorded by individuals and mutual funds, totalling $17.8 million and $12 million, respectively. On the other hand, insurance and foreigners were major sellers with net sell of $32.4 million and $9.7 million, respectively.

Average volumes arrived at 680 million shares (up by 21% week-on-week, while the average value traded settled at $143 million, up 34.6% week-on-week.

The Index was supported by improved political clarity following the appointment of the new chief of defense forces, which helped stabilize sentiment.

On the economic front, the reduction in petroleum prices, along with the government’s decision to remove the Export Development Surcharge to promote exports, further strengthened confidence.

Additionally, Saudi Arabia’s extension of the $3 billion deposit maturity until next year signaled renewed trust in Pakistan’s economic outlook.

These combined developments boosted investor confidence and contributed to the market’s upward momentum.

According to an analyst from Arif Habib Ltd., the sentiment is expected to remain positive next week, ahead of the IMF Board meeting, where approval is anticipated for the disbursement of a loan tranche as well as funding under the climate fund, totaling approximately $1.2 billion.

Additionally, any updates on the resolution of the power sector's circular debt, particularly regarding potential payments, could further bolster this positive outlook.

The KSE-100 Index is currently trading at a PER of 8.43x against its 15-year average of 8.59x, offering a dividend yield of 5.78% versus the historical average of 6.11%.

An analyst from AKD Securities said market will remain upbeat given the successful IMF Executive Board approval of the second review, minimal flood impact and improved credit ratings by global agencies amid falling fixed income yields.

Investor sentiment is expected to further improve on the likelihood of foreign portfolio and direct investment flows, driven by improved relations with the US and the kingdom.

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 7.7x while offering a dividend yield of 6.7%.