AHL expects KSE-100 at 52,000 points by next December

AHL predicts FY21 current account in deficit; foresees no significant rupee depreciation

Arif Habib Limited (AHL) has predicted that the benchmark index of Pakistan Stock Exchange, KSE-100, will reach up to 52,000 points by next December.

Releasing its ‘Pakistan Investment Strategy Report for 2021’ on Friday, AHL predicted that the domestic equity market will be an attractive investment avenue and that it expects the KSE-100 Index will reach 51,000-52,000 points by December 2021.

Head of AHL Research Tahir Abbas, while providing an overview of the strategy report to media, stated that fundamental economic recovery, led by higher activity, stable outlook on the external sector, impressive corporate profitability, strong liquidity and prevailing attractive valuations, are likely to ignite buoyancy in the bourse.

“With the rollout of vaccines expected in the near future, AHL expects the opening up of global economies – a major trigger for exports of Pakistan along with continuance of robust momentum of remittances which should lend further support to the external account,” he said. “With Pakistan being a consumption-driven, import-dependent economy, it is expected that overall current account for FY21 will swing into deficit.”

Abbas further highlighted that deficits on the current account are not necessarily negative for the economy. “AHL expects the deficit will be at a level that will be both manageable as well as fruitful for the economy, contributing to recovery in GDP growth. Reserves are at highly comfortable levels (almost 3-year high), and together with market determined exchange rate, and stable external account position, AHL does not foresee any significant depreciation in the PKR/USD parity.”

Addressing the media, AHL CEO Shahid Ali Habib said, “We cite low interest rate regime, along with government and State Bank’s incentives as key triggers for a continuation in the stark turnaround of activity in the manufacturing sectors. Earnings growth is expected at 17.6pc during CY21, which is a 6-year high.”

He said the jump in corporate profitability is expected to be led by cement, automobile assemblers, textiles, technology and oil marketing while attractive valuations in the banking and oil exploration & production sectors are likely to attract interest. He said the recent supportive measures by SECP for digitalisation of account opening are expected to lead towards increase in participation and number of investors in the market.

“Additionally, rise in valuations and higher activity in the stock market are likely to attract more companies for listing on the exchange in 2021.”

The KSE-100 Index is trading at a CY21 P/E of 7.0x – an 18pc discount to historic average multiple of 8.5, while trading at a P/B of 1.0x – a 46pc discount to historic average of 1.9x. Moreover, the index valuations are highly attractive when compared to the region as well: at a 56pc discount to regional markets against an average historic discount of 36pc.

According to the report, the AHL believes the SECP’s efforts for promoting the development of capital markets of the country have been commendable. Recent SECP approval of the framework for digital account opening is a big leap forward.

Furthermore, the government’s efforts for enforcing stringent KYC-AML regulations across the country, have resulted in significant progress on the FATF front. AHL is confident that Pakistan will secure an exit from the FATF Grey List in February, which is likely to be a propelling force for foreign investment, said the report.

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