Introduction
The Pakistan Stock Exchange (PSX) showcased remarkable resilience and bullish momentum, closing the week at an unprecedented high despite escalating security concerns and political tensions. This performance, underpinned by strong economic indicators and strategic sector performances, illustrates the market’s capacity to thrive amid external challenges.
PSX Performance Amidst External Concerns
Ignoring Security and Political Tensions
Throughout the week, the PSX managed to disregard the deteriorating security situation and intensifying political strife in the country. Investors showed confidence, focusing on positive economic data and lower lending costs, which attracted substantial inflows from fixed-income deposits to equities.
IMF Concerns Overlooked
The International Monetary Fund’s (IMF) warnings about external financing gaps and revenue shortfalls were also largely ignored by the equity market. The PSX’s sustained bullish trend was driven by robust economic indicators and declining lending rates, which provided a conducive environment for equity investments.
Impressive Gains and New All-Time Highs
KSE-100 Index Performance
The KSE-100 index continued its relentless bullish momentum, touching an intraday high of 99,630 points, just 377 points shy of the coveted 100,000 mark, before settling at an all-time high of 97,798.23 points. This represented a significant gain of 3,035.23 points, or 3.2 percent, week-on-week.
Sector Contributions
According to AKD Securities, the positive market momentum was primarily driven by the banking and fertilizer sectors, which collectively contributed 2,839 points to the index. The re-rating of these sectors continued due to their attractive dividend yields compared to fixed-income yields. The fertilizer sector’s performance was further bolstered by the ongoing amalgamation of Fauji Fertiliser Company with Fauji Fertiliser Bin Qasim, with FFC emerging as the week’s best-performing stock.
Economic Indicators and Market Drivers
Positive Economic Indicators
Falling Lending Rates
Positive economic indicators played a crucial role in sustaining the market rally. The lending rates saw a significant decline, which encouraged investors to move their funds from fixed-income deposits to equities in search of higher returns.
PIB Auction Results
In the latest PIB auction, yields for two-, five-, and ten-year bonds fell to 13.05%, 12.50%, and 12.84%, respectively, marking their lowest levels since March 2022. This decline in yields further boosted investor confidence in the equity market.
IMF Review and Investor Confidence
The conclusion of the IMF interim review and its positive remarks alleviated fears of a potential mini-budget, boosting investor confidence. On the macroeconomic front, the current account balance for October posted a surplus of $349 million, bringing the 4MFY25 cumulative surplus to $218 million, compared to a deficit of $1.5 billion during the same period last year.
Sector-wise Performance
Banking and Fertilizer Sectors
The banking sector’s advance-to-deposit ratio rose to 44% as of October 25, from 39% the previous week, to avoid higher ADR-based taxation. This shift was driven by the government’s appeal in the Supreme Court against the Islamabad High Court’s stay order on this tax.
Power Generation and SBP Reserves
Power generation increased by 7.2% year-on-year, reaching 10,262 GWh (13,793 MW) in October, with actual generation surpassing reference generation by 0.7% for the first time in 13 months. Additionally, the State Bank of Pakistan’s reserves increased by $29 million to $11.3 billion.
Rupee Depreciation
Despite the positive macroeconomic indicators, the rupee depreciated marginally by 0.10% to Rs277.96 against the US dollar week-on-week.
Sector Contributions
Positive Contributors
Sector-wise, positive contributions came from commercial banks (1,475 points), fertilizer (1,386 points), miscellaneous (112 points), pharmaceuticals (103 points), and chemicals (83 points).
Negative Contributors
Conversely, the sectors that contributed negatively included cement (151 points), refinery (54 points), and technology and communication (35 points).
Scrip-wise Contributions
Positive Scrips
Scrip-wise, the positive contributors were FFC (980 points), Meezan Bank (393 points), Bank Al-Habib (254 points), Habib Bank Ltd (207 points), and MCB Bank (180 points).
Negative Scrips
Meanwhile, negative contributions came from Hub Power Company (91 points), The Searle Company (59 points), TRG Pakistan (56 points), Lucky Cement (52 points), and Attock Refinery Ltd (48 points).
Foreign and Local Trading Activity
Foreign Selling
Aggressive foreign selling was observed, totaling $32.9 million compared to a net sell of $10.6 million in the previous week. Significant selling was seen in banks ($21.8 million), followed by fertilizer ($7.4 million).
Local Buying
On the local front, companies reported buying worth $13.0 million, followed by mutual funds with $12.3 million.
Trading Volume and Value
The average trading volume rose by a meager 1.8% to 870 million shares, while the trading value fell by 4.8% to $109 million week-on-week.
Market Outlook and Future Prospects
Positive Market Outlook
According to AKD Securities, the market is likely to maintain a positive outlook, driven by ongoing monetary easing amid a disinflationary environment and improving macroeconomic indicators. Investors are expected to focus on upcoming inflation figures and the decisions of the forthcoming Monetary Policy Committee meeting next month.
Attractive Equities
Declining fixed-income yields and strengthened macro fundamentals are expected to keep equities as an attractive asset class. The market is currently trading at a price-to-earnings multiple of 4.5x and a dividend yield of 10.4%.
Conclusion
The PSX’s performance, despite security and political concerns, reflects strong investor confidence backed by positive economic indicators and strategic sector performances. As the market continues to navigate external challenges, its resilience and potential for growth remain evident.
FAQs
What factors contributed to the PSX’s record high?
The PSX’s record high was driven by positive economic indicators, declining lending rates, and strong performances in the banking and fertilizer sectors.
How did the IMF’s concerns affect the market?
The IMF’s concerns were largely ignored by the market, which focused instead on positive economic data and falling lending rates.
What was the impact of the PIB auction on the market?
The decline in PIB yields to their lowest levels since March 2022 boosted investor confidence and contributed to the market rally.
How did the banking sector perform during the week?
The banking sector performed well, with a significant rise in the advance-to-deposit ratio and strong contributions to the KSE-100 index.
What is the market outlook for the coming weeks?
The market is expected to maintain a positive outlook, driven by ongoing monetary easing, declining fixed-income yields, and improving macroeconomic indicators.
