Many observers today are puzzled and intrigued by the stock market’s unusual vigor, which comes while inflation and political unpredictability wreak havoc on Pakistan’s economy.
As markets transmitted last week’s IMF delight throughout the market, the KSE-100 index surged about 6% higher in the first hour of trading today. Since then, it has risen nearly 2,400 points to be currently trading at levels above 43,933.
Surge in KSE-100 Index
It is anticipated that today’s KSE-100 index rally will give investors the most flexibility possible by indicating a few more recoveries throughout July, in line with market expectations, and will point in the direction of a big skip rather than an extended pause until December 2023 to sit and observe the effects of the IMF bailout and the State Bank of Pakistan’s (SBP) surprise 22% interest rate to start the new fiscal year.
Economic analyst A H H Soomro told, “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.”
Investors eagerly awaited a decision on the IMF cash and Finance Minister Ishaq Dar’s contentious budgetary exercise last month, which added to worries about a potential slowdown in index growth.
As a result, all KSE-100 indices recovered smartly today, driven by gains in the equities of banks, oil and exploration companies, and fertilizer companies.
“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).
The new arrangement is anticipated to increase investor confidence, at least in the short term, although the IMF’s approval remained crucial to calming market jitters.
Execution of the reforms, which the Fund has once again emphasized and which include reforms in the energy sector, control over inflation, and fiscal discipline, would likely be a condition for an extended market advance and the unlocking of values.
PSX reversed the bearish shape of KSE-100 index from the previous week by surging above 43,700+. It has now developed a bullish piercing pattern, but in order to accelerate over 44,000 in the future days, it must break out of the present band.
Many investors, according to industry analysts, are still leery of the $3 billion IMF assistance. They claimed that the authorization and prospective payment would provide liquidity and provide a route for other creditors to release pledges totaling $11 billion from last year, but they acknowledged that market mood might be dampened by uncertainty around the general elections in October 2023.
Experts said, “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 stated.
According to JS Research, in response to a question, any KSE-100 index closing today over 43,800 would maintain the positive momentum, with the next objective falling between 44,700 and 45,000, which may then increase to 46,200, though a slight resistance at 44,300 cannot be ruled out. The downside risk is still mostly represented by today’s gap opening at 41,450.
The KSE100 Index is still trading at reasonable multiples of under 3x, pricing in decreased investor confidence brought on by the IMF deal’s postponement.
In light of favorable values, JS Global prefers UBL, BAFL, MEBL, HMB, BAHL & MCB as choices from the banking sector over energy equities such as OGDC, PPL, SNGP & MARI.
The benchmark index may be driven in the next days by the cement sector, which includes MLCF, PIOC, and KOHC as some of the top options.
AGP Limited is one of the top options in the pharmaceutical sector, where bulls may look for fresh rallies amid discussions about medicine price increases.
To read our blog on “KSE-100 climbs 692 points, with energy stocks driving the advance,” click here.
