AHL report holds bullish view for PSX in 2018


  • Arif Habib Limited report states PML-N likely to lead in general election

KARACHI: Arif Habib Limited (AHL) holds a bullish view of Pakistan’s equity market and anticipates the generation of a total return of 20 per cent during 2018, if the index expected to reach a level of 47,200 points by December 2018.

In its annual report released on Tuesday, the upside potential in the Pakistan Stock Exchange (PSX) is primarily premised on prevailing attractive valuations in the market (KSE-100 is trading at a 5-year low Per of 8.5x and at a 46 per cent discount to its regional peers).

Samiullah Tariq, Research & Business Development director in its report said, “Diluting political noise, commencement of a high Economic Growth period (2018-20 average GDP growth expected at 6.0 per cent compared to past 5 year average of 4.4 per cent), low interest rates (2018-20 average discount rate is expected at 6.75 per cent, compared to past 5-year average of 8.64 per cent) and strong domestic liquidity lend further conviction to our healthy outlook for the domestic equity bourse.”

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The AHL favoured sectors for 2018 include banks, whose healthy profitability outlook is hinged on interest rate uptick and strong loan growth, followed by E&Ps (Exploration and Production) which is likely to benefit from rising oil prices globally and Pak-rupee depreciation along with hydrocarbon production growth. Other favoured sectors include Autos (government priority to favour domestic industry and strict import controls deemed positive), Steel (capacity accretion, diversification and pricing power remain key themes) and Cement (robust demand amid infrastructure expenditure to bode well).


According to the AHL report, the results of the 2018 General Elections are expected to be mixed where no major party is projected to achieve a clear majority. The outcome would be a hung parliament which is negative for economic governance as coalition governments are unable to make tough economic decisions.

The research head believed that the PML-N would be able to achieve the highest number of seats and form a coalition government along with smaller parties.

He further said we can safely conclude and speculate that with a new government taking charge, the equity market responds with positivity owing to jubilant investor sentiment as there is stability in the polity of the country.


During five month of 2017-18 headline inflation averaged at 3.59 per cent. The report revises 2017-18 estimates for inflation from 4.2pc to 4.6pc, accounting for increasing international commodity prices and depreciation impact, although minor.


On the external front, the report projects the Pak-rupee to depreciate to Rs 112/USD by June 2018 in light of the widening current account deficit amid higher machinery and petroleum imports.

To recall, CAD clocked-in at $12.1 billion at the end of FY17 (3.8% of GDP) and we project it to settle at $15.1 billion by the end of 2017-18 (4.5% of GDP).


Imports during FY17 settled at $48.6 billion and we project them to rise to $53.4 billion during FY18.

The YoY increase in imports during 2017-18 will come down to 10% as opposed to 18% during FY17.


Funding for the CAD is likely to be sourced from higher foreign direct investment, which we expect to cross $3 billion, coupled with borrowings from commercial banks, multilateral institutions and bond/sukuk issuance (Pakistan recently issued Euro bond and Sukuk worth $2.5 billion and investor participation amounted to $8.3bn which demonstrates Pakistan’s ability to borrow from global financial markets).


The report expects the fiscal deficit during 2017-18 to settle at 5.5pc of the GDP compared to 5.8pc in FY17.

CY18 is an election year and the government will pursue an expansionary fiscal policy. Secondly, as the government intends to support exports via clearance of refunds and provision of incentives in addition to currency devaluation, expenditure would remain high.

The budget deficit is expected to clock-in at Rs 2,155 billion by the end of 2017-18, showing a 15.6 per cent uptick YoY.


Pakistan’s tax collection grew by an impressive 4-year CAGR of 15pc during 2013-17 on the back of strong growth in direct (16pc) and indirect taxes (14pc).


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Arshad Hussain
Arshad Hussain
The author is business reporter at Pakistan Today. He can be reached at [email protected] He tweets @ArshadH47736937
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