Which stocks benefited the most from Pakistan's spectacular stock market rally?

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 index is nearing a new milestone of 100,000 points, with analysts saying there is a lot more room for the rally to continue.

This impressive performance is attributed to improving macroeconomic indicators and the restored confidence of international investors and institutions following the approval of IMF's Extended Fund Facility (EFF) for Pakistan.

Key factors contributing to this market surge include a decrease in interest rates from a high of 22% to 15%, an easing in inflation from a peak of 38% to 7.2%, and a stable PKR.

Since June 27, 2023, the KSE-100 index has soared from 40,000 points to nearly 100,000 points. This broad-based market rise has seen particularly outstanding performances from certain stocks, reflecting investor confidence in Pakistan's economic future.

Which stocks performed best?

Sazgar Engineering (SAZEW) stood out during this period, witnessing an extraordinary increase from PKR 50.85 on June 27, 2023, to PKR 1,054.27, marking an appreciation of 2,040%.

In November 2022, Sazgar Engineering launched Pakistan's first locally assembled hybrid electric vehicle — the Haval H6 — becoming a major revenue driver. By early 2024, they celebrated producing their 10,000th hybrid vehicle. In August, MSCI upgraded Sazgar to its Frontier Market index, attracting foreign investment.

For the quarter ending September this year, Sazgar reported a net profit of PKR 4.22 billion [EPS: Rs69.77], up 540.4% from Rs658.54 million [EPS: Rs10.89] the previous year. Sazgar plans to roll out new energy vehicles next year, further strengthening its market position.

Meanwhile, Airlink Communications (AIRLINK), a local mobile phone maker, saw its stock price jump from PKR 19.83 to PKR 129.06, a 594% increase.

The company remains a high-potential stock due to affordable pricing of mobile phones, rising smartphone adoption driven by population growth and technological advancements, and expanding product portfolio, including local assembly of Xiaomi TVs.

Analysts expect Airlink to achieve a 28% annual earnings growth over the next four years. Pakistan's local mobile phone makers now meet the country's annual demand of around 32 million units, opening up potential for exports. However, actual exports will depend on government incentives and market conditions.

Separately, Fauji Fertilizer Bin Qasim (FFBL) — Pakistan's only DAP manufacturer — experienced impressive growth, with its stock price rising from PKR 11.78 to PKR 74.43, a 540% increase. Recently, Fauji Fertilizer Company Limited (FFC) merged with FFBL. This merger is expected to not only solidify FFC's dominant position in the urea market but also enhance its market share in the DAP segment.

Other notable performers included GLAXO, Service Industries (SRVI), and Arif Habib Limited AHL, with returns of 375%, 348%, and 266% respectively.

Companies like Fauji Fertilizer (FFC), Meezan Bank (MEBL), and United Bank (UBL) also featured prominently, each showing returns above 200%. Banks fared well lately in the high interest environment and massive investment in government papers.

AGP Limited, a pharmaceutical company, saw its stock grow by 191% from June 27, 2023, to September 22, 2024. Investors are interested because AGP is expected to achieve a 16% annual revenue growth over the next five years (2024-2029). This growth is supported by their strong product lineup, expanding distribution network, strategic acquisitions of Sandoz and Viatris, and deregulation of non-essential drugs.

Additionally, their pipeline of new products, including nutraceuticals, is driving more growth. AGP's solid financial position and strategic partnerships help reduce risks and ensure long-term success.

Standard Chartered Bank (SCBPL) and Fauji Cement (FCCL) also displayed significant growth with returns of 191%, and 187% respectively.

Bank Al Falah (BAFL), Packages Limited (PKGP) and Engro Fertilizer also recorded impressive returns ranging from 186% to 184% during the period.

KSE-100's P/E ratio

Currently, the stock index is trading at a price-to-earnings (P/E) ratio of 4.8x, much lower than its 10-year average of 7.1x. This indicates a substantial growth potential, with nearly a 50% increase possible from the current level of 97,000 points, even without considering future earnings growth.

For context, the KSE-30 index, which tracks stock price performance, is only 8% higher than its all-time high in 2017. This shows that the broader market remains undervalued, making it an attractive option for investors.

Additionally, the market is offering a high dividend yield of 10.4%, which is much better than returns from most other investments.