Pakistan stocks poised for steady gains amid inflation easing and financial results

Pakistan equity market is expected to record steady gains as investors are highly selective in stock buying, mainly due to financial results and inflation numbers announcements.

The index movement is likely to be cautious, primarily dependent on buying from institutions, especially banks and mutual funds.

An analyst at Arif Habib Limited said the market is likely to sustain its positive momentum in the coming week, driven by expectations of a further decline in inflation. "We project Jan’25 inflation to clock in below 3%," he said.

Moreover, many financial results will be announced in the upcoming week, which may cause certain scrips to come into the spotlight.

The KSE-100 is currently trading at a PER of 6.2x (2025) compared to its 10-year average of 8.0, offering a dividend yield of 8.2% compared to its 10-year average of 6.5%.

An analyst from AKD Securities said the market is expected to remain positive, with short-term market momentum largely following the upcoming corporate results.

Furthermore, Jan’25 inflation figures would also remain in the limelight, with AKD expectations at 2.7%.

“Over the medium term, the KSE-100 is anticipated to sustain its upward momentum through CY25, where we foresee the KSE-100 Index reaching 165,215 points by Dec’25, primarily driven by the strong profitability of fertilizer companies, higher sustainable ROEs of banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates.”

"We are in the midst of earnings season, and movement in share prices is driven by earnings/dividends announcements (post-results) and expectations (prior to results)," said a report by Spectrum Securities.

Banking shares have advanced recently, amid expectations of relatively better dividends (despite the expected dip in earnings), as valuations remain at good levels and are not overstretched.

At the macro level, interest rates are now likely to move within a narrow band amid reduced expectations of further cuts in the policy rate going forward, the report said.

Focus will shift towards the IMF review mission (which is expected to take place in March) and the meeting of targets as agreed with the fund. Since the country has met the majority of the key targets, the next disbursement from the IMF will likely take place on time.

The key event to watch next week will be the new tariff measures that the US will announce starting in February, with expectations of 25% tariffs on imports from Canada and Mexico. The dollar has strengthened in international markets, with almost all other currencies losing value, such as the Canadian dollar and the euro in recent days.

US dollar strength and higher US interest rates will have negative implications on developing countries like Pakistan, as it may create pressure on the rupee to stay competitive in the export market.

The KSE-100 index fell by 625 points or 0.54% to close at 114,256 points during the week ended January 31.

The fertilizer sector experienced a significant decline, contributing to a negative movement of 477 points. This was followed by the oil marketing companies (OMCs) sector, which saw a decrease of 208 points.

Additionally, the pharmaceuticals sector fell by 85 points, adding to the overall downward trend. The exploration and production (E&Ps) sector also recorded a drop, contributing 60 points to the negative performance.

Foreign selling was witnessed during this week, clocking in at $4.1 million compared to a net buy of $5.6 million last week.

Average volumes arrived at 498 million shares, down by 28.8%, while the average value traded settled at $98.5 million, down 20.6% compared to last week.

A report from InterMarket Securities noted that, having gained a stellar 84% across 2024, the KSE-100 traded in a narrow band in January, closing the month with a marginal 0.76% decline.

Daily turnover decreased by 35% to $159 million, although this was still higher than 2024’s average daily turnover of $109 million. With the economy having stabilized and monetary easing already greatly priced in, investor attention turned to incoming results to recalibrate positions.

Stocks trading at frothy valuations saw profit-taking, while high dividend-yielding names saw a run-up. Interestingly, local mutual funds turned net sellers in January, in sharp contrast to the $183 million net buying over the previous six months, the report said.

Foreign corporates remained on the selling side.