Pakistan stocks anticipate bullish rally driven by strong banking sector results

Pakistan stocks are anticipated to rally, driven by strong financial results, particularly from the banking sector.

Investors are also closely monitoring the upcoming short-term government securities auction, with most analysts predicting that cut-off yields will likely remain unchanged.

The KSE-100 continued with the bullish momentum closing the week ended December 3^rd, at its highest level of 117,587 points, gaining 5.6% or 6236 points during the week.

Sector-wise, positive contributions were led by fertilizers, which gained 1,439 points. Banks followed with an increase of 560 points, investment banks/investment companies/securities companies added 221 points, automobile assemblers rose by 214 points, and power companies contributed 82 points.

The week commenced with December 2024 inflation data, which came in at 4.1%, marking the lowest reading in over 6.5 years.

Salman Ahmed, Head of Sales at Aba Ali Habib Securities, said the market next week would be dictated by monetary and refinery policies, as well as the commencement of the financial season.

He mentioned that there is room for further cuts in the policy rate. Even the Prime Minister, in a recent SIFC meeting, indicated that the interest rate could see further trimming.

Salman also stated that there has been talk in the market about upcoming measures related to the refinery policy, with the FBR working on resolving the pending issue of tax imposition.

He pointed out that the cement sector is under the radar due to selling pressure, driven by rumors of cartelization breakup, which could lead to price cuts.

Another factor contributing to the pressure on the cement sector is the seasonal sales decline, as consumption has dropped with the commencement of snowfall, slowing down construction activities.

Jibran Sarfaraz, an equity dealer at Munir Khanani Securities, said that with inflation contained below the 5% mark, more cuts in the policy rate are expected, hinting towards a single-digit year.

He mentioned that all key economic indicators have been on the recovery; however, some pressure might appear due to selling from mutual funds and foreign investors aiming to book capital gains, as the market surged by 84% in 2024.

Saad Hanif, Head of Research at Ismail Iqbal Securities, said that remittance numbers will be a major focus next week, as reaching the $3 billion figure would help maintain current account numbers.

The current account is likely to show a deficit after four months of continuous surplus, as reserves have fallen in the last two weeks and December imports have accelerated after 27 months.

Saad mentioned that the auction of treasury bills is also scheduled, with yields being closely watched. He added that January inflation will be below the 4% mark; however, a spike is expected in May 2025.

Overall, on a yearly basis, the inflation rate is projected to be around 6.6%. He cautioned about inflation, as reports indicate that wheat sowing is approximately 30% less, leading to a potential price spiral for wheat-related products.

This would impact the inflation basket, contributing to the expected price increases.

An analyst from Arif Habib Limited said, "We expect the January effect to continue during the upcoming week. With the closing of 2QFY25/4QCY24, the market participants will now be focusing on scrips which could have robust earnings and hefty dividend potential,” said an analyst from Arif Habib Ltd.

The KSE-100 is currently trading at a PER of 6.4x (2025) compared to its 10-year average of 8.2x offering a dividend yield of ~7.6% compared to its 10-year average of ~6.5%.

Foreign buying witnessed this week amounted to $0.9 million, compared to a net sell of $6.8 million last week. On the local front, selling was reported by companies at $11.3 million and other organizations at $9.1 million.

Average volumes reached 1,044 million shares, up 31% compared with the preceding week, while the average value traded settled at $156 million, up 1% from the week earlier.