PSX likely to continue rally on circular debt hopes, earnings momentum

The Pakistan Stock Exchange (PSX) may see some volatility in the upcoming week as the leveraged amount has reached PKR 74 billion. However, with the resolution of the circular debt issue in sight, the KSE-100 index, particularly the oil and gas sectors, are likely to propel the market upwards, analysts informed Nukta.

The market sustained its bullish momentum throughout the week on anticipation of strong earnings during the ongoing results season. Consequently, the KSE-100 index reached an all-time high closing of 145,647 points on Thursday.

However, there was a meager decline in the last trading session and the index closed at the end of the week at 145,383 points up 4,348 points 3.08%.

Additionally, market participation went up, with average daily traded volume increasing by 16.3% to 653 million shares, up from 561 million shares in the previous week.

'Potentially defining week'

"With investor attention firmly fixed on two pivotal developments, the PSX is poised for a potentially defining week. The much-anticipated power circular debt transaction, expected to be executed next week, stands as a critical inflection point,” said Ali Nawaz, CEO Chase Securities.

"If finalized smoothly, this move could ease one of the market's longstanding fiscal overhangs and significantly bolster confidence, particularly across energy, banking, and cement sectors,” he added.

At the same time, the ongoing wave of corporate earnings releases continues to stir interest among investors, keeping momentum alive as market participants digest results and recalibrate positions.

In aggregate, the PSX appears set for a cautiously optimistic trajectory, he said. Should both the debt resolution and corporate earnings deliver as hoped, it could reinforce the current bullish trend. However, any hiccup in either sphere may quickly introduce volatility and test sentiment, according to the Chase Securities CEO.

Jibran Sarfraz, equity analyst, said that the trend would remain mixed next week but there would be selective buying in the oil and gas sectors likely due to the circular debt issue resolution under which certain companies have started receiving the amounts owed to them by the government.

He pointed out that release of financial results has commenced and a number of companies have announced healthy profits.

Sarfraz said the market gained 7,000 points in six sessions. The index was likely to see some adjustments but since the overall sentiment remained positive, the market was likely to rally.

An analyst from AKD Securities said that the market is expected to remain positive in the coming weeks, with further developments over circular debt expected to drive the market along with upcoming corporate results remaining in the limelight.

The KSE-100 is anticipated to sustain its upward trajectory with a target of 165,215 points by December, primarily driven by strong earnings in fertilizers, sustained ROEs in banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates and economic stability.

An analyst from Arif Habib Ltd., said that the market is expected to maintain a positive tone in the upcoming (short) week, supported by ongoing corporate results, and potential developments on the circular debt resolution front.

New liquidity

An analyst from Spectrum Securities said the market is driven by new liquidity flows from mutual funds and individuals as foreigners and banks remained net sellers.

Index heavy weights in energy, banking, fertilizer, and cement sectors are leading the market, with smaller participation of stocks from other sectors such as textiles, pharma, and autos.

The majority of the outperformers of recent weeks have growing size of leverage exposure as well, which is pretty normal for the market, he said. However, as the quantum of leverage has now reached close to PKR 74 billion, one should expect higher volatility, according to the analyst.

Moreover, profit taking cannot be ruled out in the upcoming week.

Based on technicals, index should stay above previous week’s low near 141,000 for a move towards 150,000. On the downside, near-term support level is 143,000, followed by 141,000 and 137,000.