Pakistan stocks anticipate recovery amid positive economic indicators and attractive valuations

The Pakistan stock market is expected to see a recovery in the upcoming week, buoyed by anticipated positive current account figures for December 2024.

An analyst at Arif Habib Limited, said following a recent correction, many stocks are now trading at appealing valuations, likely to attract investors.

The KSE-100 index declined by 4,340 points, or 3.7%, reaching 113,247 points during the week ended January 10, 2025.

The market experienced consistent pressure throughout the week due to several factors, including profit-taking by institutional investors, political uncertainty, and new tax amendments imposing restrictions on non-filing Pakistan Stock Exchange (PSX) investors.

In compliance with International Monetary Fund (IMF) requirements on gas supply cuts to captive power plants, the government proposed a phased levy on gas prices.

Starting with a 5% levy and increasing to 10% in the second phase, the levy is expected to be implemented before the IMF's March quarterly review.

Foreign selling was recorded at $5.7 million, compared to a net buy of $0.9 million last week. Major selling was seen in banks, followed by fertilizers.

Analysts from Spectrum Securities maintain a cautious stance on the market for the near term, as technical indicators point to more weakness despite prices reaching important support levels near 30-day moving averages.

A bounce-back is expected earlier in the week, as the rebound on Friday may extend into the new week. The result season (December year-end and half-yearly) is one month away, providing a clearer picture of future profitability for various stocks.

Valuations have been rerated, and traders believe further upside in rerating is likely as macro indicators move in the right direction. However, earnings disappointment could negatively impact share prices of companies that have rallied strongly in the recent past.

Salman Ahmad, Head of Institutional Sales at Aba Ali Habib Securities, commented, "It was a very volatile week due to technical corrections, profit-taking, and redemptions by mutual funds. Additionally, political uncertainty impacted market sentiment, leading to several bearish sessions during the outgoing week."

He added that the coming weeks may see some bullish momentum, with an expected 100 basis points cut in the upcoming monetary policy this month.

Furthermore, the results season will begin by the end of this month, with extraordinary banking sector results anticipated, and the market has undergone sufficient correction.