ISLAMABAD: The Pakistan Stock Exchange (PSX) is poised to maintain a positive outlook following the State Bank’s statement that interest rates will remain unchanged and the continuous strengthening of the domestic currency. However, the rollover week for future contracts may limit substantial gains, with investors closely monitoring announcements related to gas and petroleum products.
In the past week, significant developments have dominated the news cycle. The T-bill auction, for instance, saw a significant decrease in yields, garnering attention from investors. Furthermore, the cement sector is expected to post an impressive 25 percent year-on-year growth in sales numbers for the first quarter of fiscal year 2024. Additionally, the announcement of an election date scheduled for the last week of January has boosted investor confidence.
However, there is a short-term concern as the Sensitive Price Indicator (SPI) has risen to 39%, potentially exerting pressure on the economy.
Muhammad Rizwan Khan, Director of Brokerage at Chase Securities Pakistan Private Limited, noted, “The government’s crackdown on hoarders and power theft has had a substantial impact on reviving the economy and is expected to yield positive results in the coming days.”
In response to these developments, the Pakistan Stock Exchange’s KSE-100 index saw a notable increase of 668 points, equivalent to a 1.5% gain. Major contributors to this surge included the banking, chemical, exploration and production (E&P), and power sectors, which collectively contributed 492 points to the index.
Muhammad Rizwan added, “Looking ahead to the upcoming week, the caretaker Energy Minister is expected to reaffirm his commitment to finalize a gas price hike within two weeks. This announcement is anticipated to have a positive impact on E&P and Sui companies.”
Foreigner buying was witnessed during the week, totaling $0.29 million compared to a net sell of $9.67 million the previous week. Average trading volumes reached 139 million shares, down by 13 percent on a week-on-week basis, with the average value traded settling at $15.4 million, down by 25 percent week-on-week.
Faisal Dedhi, Head of Equity Sales at Foundation Securities, commented, “The market’s consolidation phase is indicated by the closing above the 46400 level. The government’s strong intention to resolve the gas circular debt issue may lead to fresh buying in the E&P sector if gas prices are raised in the next day or two. The banking sector is expected to perform well in the first quarter.”
Faisal also noted that the continuous uptick in inflation remains a major concern for market makers, even though the State Bank has no plans to raise interest rates, and cut-off yields in recent treasury bill auctions have decreased. He added that a drop in crude oil prices would be beneficial for the economy.
Next Week Forecast for Pakistan Stock Exchange
Shahryar Butt, Head of Portfolio Manager at Darson Securities, anticipates some selective buying in the upcoming week, with certain sectors like the auto industry and gas sector potentially gaining traction. However, the rollover week might reduce trading volume, and Friday’s holiday for 12 Rabi Ul Awal will shorten the trading period.
Shahryar also mentioned that while no positive developments emerged from the caretaker Prime Minister’s visit to the UN Assembly session, concerns were raised by the IMF Managing Director regarding PSDP spending and revenue numbers. Any new demands from the IMF could create hurdles for the market.
Abdul Azeem, Head of Research at Spectrum Securities, expects the KSE100 to remain positive in the next week following the State Bank’s commitment to maintaining interest rates and the possibility of easing inflation. However, negative impacts on the market could arise from increases in petroleum product and gas prices, as well as delays in resolving the circular debt issue.
In the forex market, Faisal Mamsa, CEO of Tresmark, suggests that Pakistan could benefit from a prudent appreciation of its currency to combat inflation, along with administrative measures and a tight monetary stance. Structural reforms, including tax reforms, expanding the tax net, revenue generation, privatization, and power sector reforms, are seen as crucial for economic rejuvenation.
Expectations of $2.5 billion in remittances, driven by crackdowns on the grey market and incentives for remitters, along with higher exports in September, are expected to keep forex liquidity ample in the market. However, the backlog of imports may keep demand high.
In terms of the exchange rate, the market expects the Rupee to consolidate in the 290-295 range, with the possibility of reaching levels around 286 per USD as political stability and election schedules unfold.
Shahrayar Butt highlighted the positive impact of the crackdown on currency-related illicit activities, and Faisal Dedhi praised the reduction in the gap between the open market and interbank market exchange rates for boosting remittances.
Shahid Ali Habib, CEO of Arif Habib Ltd., noted that the local currency has gained approximately 5.3% against the US dollar in the last thirteen consecutive trading sessions due to strict measures against Afghan transit and hawala. He anticipates further gains for the PKR if these positive measures continue and external flows materialize as expected, reaching levels around Rs. 278-280 per dollar.
The Pakistan Stock Exchange is expected to maintain a positive trajectory, supported by the State Bank’s policies and currency developments, though challenges related to inflation and energy prices persist. Structural reforms and positive economic indicators, such as remittances and exports, offer hope for the market’s future performance.
