PSX poised for further growth as funds shift from fixed income to equities: report

The Pakistan Stock Exchange (PSX) is expected to maintain its positive trajectory, driven by an anticipated shift of funds from fixed income to equities amid falling fixed income yields, according to a report by brokerage firm AKD Securities.  

The market’s positive momentum continued throughout the week, with the benchmark KSE-100 index posting a weekly gain of 6,236 points or 5.6%, closing at 117,587 points. The rally was led by the Banking, Fertilizer, and Investment & Securities cos, contributing 2,082, 1,751, and 696pts, respectively. 

Whereas, the removal of ADR tax and implementation of additional taxation resolved uncertainty over the taxation regime, fostering optimism as banks would shift focus toward deposit growth. Additionally, higher dividend expectations from fertilizer stocks and ongoing restructuring further bolstered investor confidence in later sectors. 

On the macro front, December inflation eased to a 7-year low of 4.1%, taking real positive interest rates to 890 bps, implying further potential rate cut in the upcoming Monetary Policy Committee’s meeting. Statements from the Finance Ministry and the Prime Minister hinting at interest rates dropping into single digits further fueled this optimism. 

However, a 14%YoY increase in imports widened the trade deficit to $2.4 billion in December 2024. Meanwhile, the country’s GDP growth stood at 0.9% during the first quarter of FY25, driven by agriculture and services sector growth of 1.2% and 1.4%, respectively, while the industrial sector contracted by 1.0%. 

The prime minister launched a home-grown Economic Revival Plan during the week, targeting GDP growth of 6% by FY28, exports of $60 billion, and immediate measures to reduce electricity cost.

Market participation also improved significantly during the week, with average daily traded volume rising by 32% WoW to 1.04 billion shares from 0.79 billion shares in the previous week. 

On the foreign exchange front, SBP-held reserves fell by $143 million WoW, standing at $11.7 billion as of December 27, 2024. 

During the week, other key developments included the FBR falling Rs386 billion short of its revenue target for the first half of FY25, while the Federal Petroleum Minister announced that the sale of a 15% stake in Reko Diq would be finalised soon. 

Operational data revealed that Oil Marketing Companies (OMCs) posted a 3% year-on-year increase in volumes for December 2024, with a 4% year-on-year rise during the first half of FY25. Conversely, local cement sales declined by 4.8% year-on-year in December 2024. 

Additionally, the International Monetary Fund (IMF) refused to allow reduced sales tax rates for the refinery sector.

On the sectoral front, Engineering, Textile Spinning, and Banks emerged as the top performers on the mainboard, gaining 10.6%, 8.1%, and 7.4% week-on-week (WoW), respectively. 

In contrast, the Sugar & Allied and Tobacco sectors recorded declines of 2.6% and 2.5% WoW, respectively.

In terms of fund flows, companies and other organizations were the major net sellers, offloading shares worth $11.3 million and $9.1 million, respectively. Mutual funds absorbed much of the selling pressure, recording a net buy of $16.9 million.

On a company basis, top performers during the week included PGLC (up 61.0% WoW), PSX (up 60.7% WoW), EFERT (up 19.5% WoW), DAWH (up 18.7% WoW), and MTL (up 18.6% WoW). The top laggards were TRG (down 8.5% WoW), FCCL (down 4.2% WoW), AICL (down 3.6% WoW), INDU (down 3.4% WoW), and PABC (down 3.1% WoW).

AKD Securities suggests that, with easing inflation, the upcoming MPC meeting will remain a key focus for investors. Looking ahead to the medium term, the KSE-100 Index is projected to sustain its upward momentum, with expectations of reaching 165,215 points by December 2025. This growth is anticipated to be driven by robust profitability in the fertilizer sector, higher sustainable returns on equity (ROEs) for banks, and improving cash flows in the exploration and production (E&P) and oil marketing company (OMC) sectors, supported by falling interest rates.