Pakistan Stock Exchange (PSX) performed well in 2016 and posted a gain of around 44 percent touching all times high KSE-100 index to 47,563 level mark yesterday, but closed at 47,666 points after adding 242 points on Thursday.
There is a day of trading sessions left (Friday) about to close 2016.
Despite net foreign selling of $327 million year to date (YTD), the market generated above average return due to ample local liquidity. Benchmark KSE-100 index outperformed MSCI Frontier Market that decreased by 2 percent in 2016 to date.
“Autos has remained top performing sector posting market cap gains of 70 pc,” the analyst at Topline brokerage house said. Auto sector remained a key beneficiary of rising sales led by increased consumer demand, low gasoline pump prices, improving macros and multi-decade low-interest rates, he said.
Pakistan has one of the lowest cars per 1000 (13 cars per thousand) consumption as compared to the regional peers. This will gradually increase to 20 cars per 1000 people by the end of 2021.
Cement remained the second best performing sector posting return of 61 percent. Rising domestic demand and lower energy charges kept cement sector in the limelight. In 2017, this sector is likely to benefit from increased infrastructure spending on power projects, motorways and initiation of several private sector construction and housing projects.
Oil and Gas Marketing (OMCs) also posted strong return during the period growing by 61 percent, mainly driven by strong oil sales led by low gasoline prices and rising auto sales. The analysts expect OMCs to remain in limelight in 2017 on the back of rising auto sales and increased oil demand.
Oil sales will also likely to grow at a 3-year (FY2017-19) CAGR of 9 percent as compared to last 3-year average growth of 7 percent. Increasing investment in LNG infrastructure will also drive the profitability of gas distribution companies, he added.
Index Oil & Gas Exploration Sector (E&Ps) also remained in limelight on the back of a sharp increase in international oil prices during the year. In 2016 to date, WTI crude prices have risen by 45 percent to $54/bbl.
Pharmaceutical sector performed in line with benchmark index, rising sales in consumer division and improving margins have led to increased profitability of the sector.
Banks having weight of 24 percent in KSE-100 index remained under performer as the sector posted gain of 29 percent. Major maturity of high yielding Pakistan Investment Bonds (PIBs) and decline in interest rates kept profitability and performance of the sector in check. The analysts expect interest rates to rebound from 2018, which will drive future profitability of the sector.
Fertilisers sector posted a loss of 6 percent due to weak sector dynamics as the sector continues to be plagued with weak demand and high inventory levels. The sector could remain under pressure going forward in the presence of high inventory levels, low international fertiliser price and weak farmer economics.
If the government allows export of fertilisers, it could help to reduce inventory levels of the sector and which would help in cost savings but this is subject to the government’s approval, the analyst said.
The analyst said “we have an ‘overweight’ stance on cements, consumers, autos, oil & gas marketing, and steel sectors for the next calendar year. These sectors would be the prime beneficiaries of rising domestic demand and expansion activities led by CPEC in 2017.
Meanwhile, the banks and insurance companies will continue to benefit from the increased economic activity in 2017, he added.