IMF approval boosts sentiment, but foreign selling and IPPs concerns weigh on PSX: report

The market remained volatile throughout the week, with the benchmark KSE100 index losing 782 points or 0.95% week-over-week (WoW), closing at 81,292 points on Friday. 

According to a report by AKD Securities, the IMF’s board approval briefly lifted investor sentiment on Wednesday. However, the positive sentiment was overshadowed by the continuation of foreign selling after the rebalancing of FTSE Russell, political noise, and concerns regarding the potential termination of certain IPPs contracts, inducing selling pressure in power sector heavyweights. 

Consequently, the power generation and distribution sector contributed a significant decline, eroding 800 points from the benchmark index during the week. 

Moreover, FBR is expected to post a shortfall of PkR 275 billion in 1QFY25, according to the news report. In efforts to increase tax revenue, the government. plans to abolish non-filer status and take strict measures against tax fraud. 

Furthermore, average daily trading volumes remained down by 17.1% WoW, clocking in at 389.35 million shares, compared to 469.45 million shares traded in the earlier week. SBP-held reserves increased by US$24 million on a weekly basis to stand at US$9.53 billion as of Sep 20th, 2024.

On the currency front, the Pakistani rupee largely remained flat against the greenback throughout the week, closing the week at 277.64. 

Other key developments during the week included the IMF distancing itself from Pakistan’s decision to secure a $600 million commercial loan at 11%, US Assistant Secretary of State Donald Lu praising the deepening ties with the Shehbaz government, government borrowing reaching a record high of 100.8%, the distribution of 251 green tractors to farmers, and the Asian Development Bank (ADB) possibly approving a third-party guarantee for Reko Diq by February. 

Sector-wise, top performers were Transport (+7.3%), Fertilizer (+4.2%), Investment Banks & Securities (+4.8%), Leather & Tanneries (+2.9%), and Pharmaceuticals (+2.0%). Conversely, the worst performers included Power Generation & Distribution (-11.4%), Leasing Companies (-6.7%), Textile Spinning (-5.1%), Engineering (-4.6%), and Jute (-4.0%).

Foreign investors were net sellers, offloading US$12.44 million, while Mutual Funds absorbed most of this with a net buy of US$16.21 million. 

Among individual stocks, top performers were FFC (+10.2%), GLAXO (+10.1%), AKBL (+9.7%), FFBL (+9.2%), and THALL (+6.3%). The top laggards included HUBC (-13.5%), PGLC (-12.2%), SML (-9.7%), MARI (-9.4%), and KEL (-8.3%).

AKD Securities forecasted that the market outlook remains optimistic following the approval of the IMF loan, with the first tranche of $1.02 billion set to boost investor confidence. 

Brokerage house further said that easing inflation, projected at 7.0% YoY for September, alongside ongoing monetary easing, is likely to keep equities in focus. With the market trading at an attractive price-to-earnings (P/E) ratio of 3.6x and a dividend yield (DY) of 13.6%, sectors benefiting from monetary easing and structural reforms are expected to perform well.

It added that high-dividend-yielding stocks like OGDC, PPL, MCB, UBL, and others are poised for rerating as yields align with fixed income returns.