Pakistan’s stock market set to soar in 2024: report

Two major checkpoints including external funding facilities, especially the IMF program and the general elections, will largely drive the momentum, AKD Research

Pakistan’s stock market is expected to reach above 80,000 levels by the end of 2024, as the country undergoes economic reforms, monetary easing, and improved macroeconomic indicators. 

According to a research report by AKD Research, the market movement will be erratic over 2024, due to two major checkpoints which include the external funding facilities, especially the IMF program, and the general elections in early February 2024. 

However, these events will also create opportunities for investors to buy stocks at low valuations, as the market currently trades at multi-year low price-to-earnings (P/E) ratios.

Interest rates will decline by 500 basis points over 2024, starting from March, as the inflationary pressures ease and the money supply growth slows down. The average consumer price index (CPI) is also expected to drop from 25.3% in 2024 to 11.5% in 2025.

The lower interest rates will benefit the cyclical and leveraged sectors, such as cements, steel, and fertilizers, as well as the banking sector, which will enjoy higher net interest margins and lower provisioning costs.

The report also highlights the positive economic undercurrents led by the recent measures taken by the caretaker government, which include fiscal consolidation, exchange rate stability, and structural reforms. 

The report estimates the fiscal deficit to be 7.0% of GDP in 2024, while the external funding gap of $4-5 billion will be met by the support from Saudi Arabia, China, and UAE. 

However, the uncertainty regarding the external funding situation is a risk factor, especially the status of a new IMF program, which is crucial for bridging the net funding gap of US$4-5 billion over the next 12 months. 

The report recommends a bullish stance on the stock market, with a thematic focus on three factors, including the economic reform process, the monetary easing, and the undemanding valuations. 

The brokerage house recommended a diversified portfolio of stocks that are expected to outperform the market in 2024, based on their fundamentals, growth potential, and valuations. The preferred sectors include banks, oil and gas, oil marketing companies, power, and cyclicals.

The top picks are Meezan Bank, United Bank, MCB, Bank Alfalah, Hub Power Company, Oil and Gas Development Company, Mari Petroleum, Pakistan State Oil, Attock Petroleum, Lucky Cement, Maple Leaf Cement, Fauji Cement, Mughal Iron and Steel Industries, Fauji Fertilizer, Engro Fertilizers, and Fauji Fertilizer Bin Qasim.

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