The abnormal strength of the stock market even as inflation and political uncertainty batter the Pakistani economy has baffled and excited many observers today.
The KSE-100 index rallied nearly 6% higher in the first hour of trade today as markets began spreading last week’s IMF glee all over the space, and it has since gained nearly 2,400 points to current levels above 43,933.
The expectation is today’s rally will buy investors the maximum amount of optionality by signaling a few more recoveries throughout July, aligned with market expectations, and will guide towards a big skip instead of an extended pause till December 2023 to sit and observe the effects of the IMF bailout and the State Bank of Pakistan’s (SBP) surprendre 22% interest rate to begin the new fiscal year.
Economic analyst A H H Soomro told ProPakistani,
There is a symbolic impact of the rising PSX on the wider economy of renewed optimism and investor confidence. Investors delaying expansion, new projects, and high-risk strategies will get slightly more ambitious. Firms may announce further buybacks or accelerate their current ones from FOMO. In the short term, market optimism would continue for a few quarters until the new IMF plan is onboarded primarily due to extremely low valuations. However, the multi-year rally needs to wait until next year with structural engineering reforms.
Worries were amplified last month by concerns of a possible downturn in index growth, with investors eagerly awaiting a decision on the IMF cash and Finance Minister Ishaq Dar’s controversial budgetary exercise. Consequently, all indices managed to recover smartly today, led by an upside in banking, oil & exploration, and fertilizer stocks.
If the government announces populist measures, then the market will take it negatively and will respond negatively. If however, they stick to the understanding reached with IMF then it will sustain an upward move for a while,” said Dr. Yasir Mahmood, CEO of Yasir Mahmood Securities (Pvt) Ltd, and Senior Vice Chairman Pakistan Stock Brokers Association (PSBA).
IMF’s nod remained key to calm market nerves, the new arrangement is expected to boost investor confidence, at least in the near future. Extended market rally and unlocking of valuations would likely be subject to execution of reforms yet again highlighted by the Fund, which include reforms in the energy sector, control on inflation and fiscal discipline.
PSX negated last week’s bearish formation formed by rising above 43,700+. It has now formed a bullish piercing pattern but needs to break out of the current band to show acceleration above 44,000 in the coming days.
Industry experts say that many investors are still wary of the $3 billion IMF financing. They said the approval and potential disbursal would offer more liquidity and open a path for other creditors to release last year’s $11 billion in pledges, but uncertainty over General Elections in October 2023 might offset market sentiments.
They added,
A consistent and ‘best-ever’ PSX surge till December 31st will only happen if Pakistan follows a stringent revenue-building program that inspires political and economic clarity, coupled with consequent liquidity enhancement reforms that benefit investors and pillow publicly traded companies in the long run.
“A falling trend in SBP interest rates will also funnel additional capital to the stock market, opening the way for a +25% surge till June 2024,” they also opined.
Responding to a query by ProPakistani, JS Research said any close above 43,800 today will continue the bullish momentum with the next target falling between 44,700 to 45,000 which may further rise to 46,200, though a minor resistance at 44,300 cannot be ruled out. On the downside, today’s gap opening at 41,450 remains a key risk.
The KSE100 Index continues to trade at attractive multiples of sub 3x, pricing in lower investor confidence, which was due to the delay in the IMF deal. JS Global believes energy stocks such as OGDC, PPL, SNGP & MARI would garner interest and prefers UBL, BAFL, MEBL, HMB, BAHL & MCB as picks from the banking sector amid attractive valuations.
The Cement sector with MLCF, PIOC & KOHC is some of the top picks that might drive the benchmark index in the coming days. Bulls could seek additional rallies via the pharmaceutical sector amid talks on drug price hikes, where the research sees AGP Limited among the top picks.
