Pakistan stocks may hit 125k sooner than expected

The Pakistan stock exchange index reaching 125,000 by December 2025 might seem far, but by next week, this new high is looking like a reality with the bullish trend expected to continue.

Last week, the market saw significant gains, recording its highest ever weekly gain of 7,697 points or 7.6%, closing at 109,054 points. Though it's shy of the 125,000 points forecasted by several analysts for the end of 2025, it's a step in the right direction.

This past week's returns were the highest in 55 months. The bullish trend started after November's inflation rate was announced at 4.9%, the lowest in 6.5 years. The low inflation rate led to expectations of another interest rate cut, possibly between 200 and 250 basis points, marking the fifth consecutive cut.

The 7,697 points gain mainly came from sectors like commercial banks, which added 1,434 points, Fertilizer with a rise of 1,424 points, and Oil & Gas Exploration, adding 1,148 points.

Interest in the banking sector kept rising, with gross advances increasing by 21% year-over-year as of November 15, 2024, raising the ADR to 46.9%, with expectations of crossing 50% before the year-end to avoid ADR-based taxation.

Saad Hanif, head of research at Ismail Iqbal Securities, mentioned that banks might be in the spotlight and under pressure next week due to the government's move to form a committee to resolve the issue of banks' ADR. The committee aims to find ways to tax the bank's income from investments in government securities. Saad added that while no major data releases are expected next week, if remittances stay at $3 billion and the current account shows a surplus, the market rally could continue.

An analyst from Arif Habib Ltd said that the continuation of monetary easing due to a disinflationary environment and an improving macroeconomic situation would make investment in equities more attractive. The market is currently trading at a price-to-earnings ratio of 5.0x and dividend yields of 10.2%.

"Moving forward, the upcoming monetary policy meeting will remain in investors' focus, keeping cyclical sectors attractive," said the same analyst. These factors, along with a declining need for external financing under the IMF program, would maintain foreign investors' interest.

"We expect the market to continue with positive momentum in the coming week, anticipating a rate cut in the upcoming monetary policy committee meeting on December 16, 2024," said an analyst from Arif Habib.

Foreign selling amounted to $12.2 million this week, compared to $15.1 million the previous week. Significant buying came from funds, totaling $39.6 million.

Additionally, the KSE-100 witnessed the highest ever average volumes of 1,683 million shares, up by 72% compared to the previous week. The average traded value was $198 million, up by 49% compared to the week before.