IMF tranche, easing inflation set to lift stock market sentiment, report

Following the disbursement of the first $1.02 billion loan tranche from the International Monetary Fund (IMF) and easing inflation, stock market sentiment is expected to improve, according to a report by brokerage firm AKD Securities.

The market continued its bullish momentum throughout the week, with the expectation of a declining interest rate cut and IMF’s EFF approval being the catalyst. The benchmark KSE-100 Index gained 2,240 points or 2.76% week-over-week (WoW) to close at 83,532 points on Friday. 

Overall, the bullish sentiment was predominantly driven by high-dividend-yielding sectors including Fertilizers & E&P’s, as falling fixed-income yields led to a rerating of these sectors. CPI dropped down  6.93%YoY in September 2024, the lowest level since January 2021. 

Additionally, in the auction held on October 2, the yields for the 6-month and 12-month T-Bills decreased by 334 and 326 bps, respectively, compared to the previously accepted auction. 

Moreover, the trade balance for September 2024 posted a $1.78 billion deficit. OMC’s offtakes reported at 1.27 million tons in September, up 20% annually. Whereas, cement offtakes for September clocked in at 3.67 million tons, down 5% YoY, largely due to subdued domestic demand amid the economic slowdown and higher construction costs. 

Overall, average daily trading volumes remained down by 12.1% WoW, clocking in at 342.3 million shares, compared to 389.4 million shares traded in the earlier week. 

With regards to foreign exchange reserves, SBP held reserves increased by $1.2 billion on a weekly basis after receiving the first trance from the IMF, to stand at $10.7 billion as of September 27, 2024.

On the currency front, PkR largely remained flat against the greenback throughout the week, closing the week at 277.52. 

Other key developments during the week included: 1) Pakistan and Russia signed a barter deal to boost agricultural trade, 2) Refineries demanded action on key issues before upgrades, 3) Pakistan and Malaysia vowed to strengthen ties, 4) IPP talks remained undisclosed, and 5) The government repurchased PKR 351 billion in treasury bills.

Top-performing sectors were Textile Spinning, Leather & Tanneries, Oil & Gas Exploration, Fertilizers, and Tobacco, up 10.8%, 6.7%, 5.8%, 5.2%, and 4.8% WoW. Modarabas, Vanaspati & Allied, Close-End Mutual Funds, Woollen, and Investment Banks/Companies were the worst performers, down 8.0%, 4.4%, 4.2%, 3.9%, and 3.7% WoW.

Foreign investors sold $26.1 million, while mutual funds absorbed the same amount.

Top gainers were AIRLINK (13.2% WoW), NCPL (11.6% WoW), PKGP (10.5% WoW), PPL (10.2% WoW), and FFC (10.1% WoW). The top laggards were TRG (-12.9% WoW), FHAM (-11.6% WoW), INIL (-9.9% WoW), EPCL (-7.8% WoW), and EFUG (-7.0% WoW).

AKD Securities forecasts a positive market outlook following the approval of the IMF’s executive board and the receipt of a $1.02 billion tranche, citing easing inflation, a 6.93% YoY CPI in September, and ongoing monetary easing. 

The market is currently trading at an attractive price-to-earnings (P/E) ratio of 3.6x and a dividend yield (DY) of 13.1%.

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