PSX hits all-time high as rate cut, IMF inclusion drive bullish momentum

The market continued its positive momentum, buoyed by last week’s key catalysts of interest rate cut and Pakistan’s inclusion on the IMF executive board agenda. The benchmark KSE-100 Index reached an all-time high, closing at 82,074 points with a weekly gain of 2,741 points or 3.5%. 

According to a report by AKD Securities, the bullish sentiment was predominantly driven by high-dividend-yielding sectors including Banks, Exploration & Production (E&P), and Fertilizers, as falling fixed-income yields led to a rerating of these sectors. 

Moreover, the current account balance for August 2024 posted a surplus of $75 million, largely underpinned by a 40% YoY increase in remittances. Exports also remained higher during the month, with growth largely supported by an annual increase of 13% in textile and 40% and food exports, respectively. The big industry also grew by 2.4% YoY in July 2024, with the textiles and food sectors driving output expansion. 

Additionally, the government reduced petroleum prices for the fourth consecutive fortnightly, lowering them by over PkR 80/litre compared to the same period of last year. This consistent decline in POL prices is expected to further alleviate inflationary pressures. 

Furthermore, the rejection of all bids in the recent T-bills auction and the less-than-target acceptance in the PIB auction, along with declining yields, would potentially shift liquidity toward equities. On the international front, the US Federal Reserve cut interest rates after four years, reducing by 50 basis points (bps) to 4.75%-5.0%.

Market participation fell by 22.6% WoW, with the average daily traded volume dropping to 469 million shares from 607 million shares in the previous week. On the currency front, the Pakistan rupee largely remained flat against the greenback throughout the week, closing the week at 277.8 per US dollar. 

During the week, key developments included the Asian Development Bank’s assurance of providing Pakistan with $2 billion in annual loans, foreign direct investment (FDI) rising to $350 million in the first two months of FY25, a 17% year-on-year drop in power demand in August 2024, and the government raising PKR 111 billion in a Pakistan Investment Bonds (PIBs) auction against a target of PKR 200 billion. Sector-wise, Pharmaceuticals, Commercial Banks, and Fertilizers were among the top performers, with week-on-week gains of 5.0%, 5.0%, and 4.8%, respectively. 

In contrast, the Woollen, Cable & Electrical Goods, and Engineering sectors saw the steepest declines, dropping by 4.9%, 4.7%, and 4.4% week-on-week. On the flow side, Foreigners recorded significant net selling at $23.2 million, while Mutual Funds absorbed much of it, with a net buying of $15.5 million. 

Leading companies in performance during the week included MARI (up 19.4% WoW), SHFA (up 11.8% WoW), HBL (up 10.7% WoW), MEBL (up 9.8% WoW), and MCB (up 9.6% WoW). Meanwhile, the top laggards were SML (down 21.4% WoW), YOUW (down 8.8% WoW), WFUG (down 8.5% WoW), TGL (down 8.4% WoW), and PIBTL (down 8.3% WoW).

AKD Securities forecasted that the IMF Executive Board’s approval, along with continued monetary easing would keep equities in focus, with the market trading at an attractive price-to-earnings (P/E) ratio of 3.7x with a dividend yield (DY) of 13.2%. Additionally, the completion of the FTSE rebalancing would further boost investor confidence. 

The brokerage firm recommended focusing on sectors poised to benefit from monetary easing and structural reforms, particularly high-dividend-yielding stocks, as their yields are expected to align with fixed-income returns. Their top stock picks include OGDC, PPL, MCB, UBL, MEBL, FFC, PSO, LUCK, MLCF, FCCL, and INDU.