Pakistan stocks remain optimistic despite short-term setbacks

The outlook for Pakistan's stock market remains positive, driven by specific sectors and corporate results. The upcoming MSCI review next week could potentially catalyze market movements.

According to AKD Securities, the KSE-100 is expected to maintain its upward momentum through 2025, buoyed by the strong profitability of fertilizer companies, higher sustainable ROEs of banks, and improving cash flows of E&Ps and OMCs, benefitting from falling interest rates.

An analyst from Arif Habib Limited anticipates the market to turn positive in the coming week. With the ongoing result season, certain scrips are anticipated to gain attention due to expectations of better results. Currently, the KSE-100 is trading at a PER of 6.0x for 2025, compared to its 10-year average of 8.0, offering a dividend yield of 8.4%, compared to its 10-year average of 6.5%.

Meanwhile, Spectrum Securities reports that Fitch Ratings issued a note on Pakistan, maintaining the country's credit rating at CCC+. The report highlighted significant progress in reducing inflation and interest rates, with a growth target near 3% for FY25. The country is expected to increase its external reserves, but these remain low relative to funding needs. This remains a key challenge, given the maturing of $22 billion of external debt, including $13 billion in bilateral deposits during FY25. Positive rating action will require sustained recovery in reserves and a significant easing of external financing risks.

The market's near-term performance will be heavily influenced by earnings announcements, with major companies like PSO, MEBL, FCEPL, EFERT, PTC, MTL, and POWER set to announce their financials.

Since the start of January, top declining sectors include E&P, refineries, oil and gas distribution companies, and textiles. In contrast, banks, cement, pharmaceuticals, and auto sectors have either outperformed or performed in line with the market. The underperformance of energy sector companies in recent days is partly due to their strong performance in Q4 2024.

The KSE-100 has retreated back to its 60-day moving average, with near-term support levels at last week's low of 109,000 points, followed by 106,000 points. On the upside, short-term resistance levels are at 113,000 and 114,000 points, with major resistance near 118,000 points.

The KSE-100 experienced a negative trend throughout the week ending February 7, 2025, closing at 110,323 points, down 3.4% WoW. Average daily trading volumes decreased by approximately 13% WoW to 434 million shares.