Will the Pakistan Stock Exchange keep up its winning streak this year?

The Pakistan Stock Exchange (PSX) has been featuring in the news more often recently and for all the right reasons. Its benchmark KSE-100 index crossed an all-time high of 82,958.74 points during intraday trading on October 3. And it was the best-performing in Asia in fiscal year 2023-24 (FY24).

The index has already been termed the fifth-best equity market globally in dollar terms in the first nine months of this calendar year. The share prices have increased by 64%.

The major factors behind the increase have been the stability of the Pakistani rupee and the country's foreign exchange reserves, completion of a standby agreement with the International Monetary Fund worth $3 billion, and continuous growth in remittances and exports.

But will Pakistan's stock market be able to keep up its bull run? A survey of analysts suggests yes.

The PSX is likely to accelerate by 12.5% by end-December, interest rate is likely to be further trimmed by 350 basis points, and the rupee will lose its value by around one percent.

Nuktareached out to analysts at several brokerage houses, who appeared hopeful that the recent stride at the stock market will continue, with the index likely to propel to 90,000 points.

Analysts pointed out that the State Bank of Pakistan has commenced the monetary easing cycle from June after a gap of four years. Last May, inflation had reached a historic high of 38%. However, since the start of 2024, inflation has been easing and it fell to a 44-month low of 6.9% in September. As a result, the interest rate has been slashed by 450bps from 22% in June to 17.5% in September.

The trend is likely to continue and analysts are betting that by December, the interest rate would be around 14%. This means that before curtains are drawn on 2024, the interest rate would have been cut by 800bps. While the rate has been pushed back by a huge margin anyway, if it reaches to 800bps, it would be a record.

However with global crude oil expected to spike in the last quarter of 2024 on the back of increased demand during winter, there may be a slight uptick in inflation.

If inflation is around 12% and interest rate around 14% by the end of this year, the real interest will be narrowed to 2% from a high mark of 10.6% of September.

Analysts were quite optimistic about the domestic currency run-up by December, which can give some breathing space to economic managers to ease imports. The rupee is likely to depreciate by 1-1.5% by December and be in the vicinity of PKR 280-282 from the current levels of 278 per dollar.

Much, however, depends upon whether the government steadfastly follows the reforms prescribed by the IMF to pass the next review. The first tranche of $1 billion from the new $7 billion loan facility has already been deposited in the State Bank, which might open doors for other international financial institutions to approve and disburse loans.

Several economists have forecast the rupee against the dollar would be over the PKR 282 mark, but a few also hoped that it might be below the PKR 278 level.

The key element in the remaining part of the fiscal year would be the government's investment flows. Foreign investment is an essential element to keep our economy out of ICU. Several promises have been made during the last 16 years of democratic rule but the country has not yet been able to get out of the debt trap.