The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) gained 3.4% quarter-on-quarter (QoQ) in rupee terms and 3.7% in USD terms in the third quarter of 2024 (3Q2024), marking its sixth consecutive quarter of growth, according to the data compiled by the Topline Securities Ltd. Â
This positive momentum is attributed to several key factors including the completion of a staff-level agreement with the IMF at the start of 3Q2024, the IMF board’s approval and disbursement of the first tranche by the end of the quarter, inflation dropping to single digits for the first time since October 2021, a 300 basis points reduction in the policy rate to 17.5%, improvements in the country’s credit rating by Moody’s and Fitch, a better-than-expected current account surplus in August 2024, and currency stability due to strong dollar inflows.
According to Bloomberg data, Pakistan’s market was the fourth-best performer globally in the second quarter of 2024 with a total USD return of 17%. However, in the third quarter, Pakistan’s ranking dropped to 66 in the World Equity Index.
The stock market’s positive momentum has been accompanied by increased trading activity, with average traded volumes in the cash and ready markets rising by 74% year-on-year (YoY) to 490.1 million shares per day. The average traded value also increased by 86% YoY to Rs18 billion per day during 3Q2024.Â
In the futures market, average volumes rose by 61% YoY and by 8% QoQ to 172 million shares per day, while average traded value grew by 57% YoY and by 4% QoQ to Rs7.2 billion per day, partly due to lower interest rates.
According to the brokerage firm, foreign investors were net sellers of Rs4.68 billion (US$16.8 million) in 3Q2024, reversing the trend of net buying of Rs18.3 billion (US$65.8 million) in 2Q2024. The selling was attributed to FTSE rebalancing-related foreign outflows, which are expected to continue into 4Q2024.Â
However, local investors, including mutual funds, banks, and individuals, absorbed the selling pressure. Mutual funds were net buyers of US$14.2 million, followed by banks and DFIs with US$7.5 million, while individuals were the largest net buyers at US$45.8 million. Insurance companies and corporations were net sellers of US$15.5 million each.
Key stocks that outperformed the KSE-100 index during the quarter included National Bank of Pakistan (NBP) with a 62% increase, Mari Petroleum (MARI) up by 44%, and Fauji Fertilizer (FFC) rising by 42%. Sectors that outperformed the market included Jute, Pharmaceuticals, and Transport.
Factors to watch in 4Q2024
Policy Rate: The SBP’s Monetary Policy Committee (MPC) reduced the policy rate by 200 basis points to 17.5% in its September 12, 2024 meeting, the third consecutive rate cut. The decision was driven by receding inflation due to lower food prices, a favorable external position, and a high base effect. With inflation expected to remain in single digits, further rate cuts cannot be ruled out.
Rating Revision: Following the IMF’s approval of Pakistan’s US$7 billion Extended Fund Facility (EFF) on September 25, 2024, a potential upgrade of Pakistan’s credit rating by Moody’s, Fitch, and S&P is anticipated.
MSCI Inflows: The MSCI Semi-Annual Index Review scheduled for November 7, 2024, may see Pakistan’s weight in the index increase due to the continued market rally.
Commodity Prices: The economic outlook will also be influenced by commodity prices. Brent oil prices have fallen from an average of US$85 per barrel in 2Q2024 to US$79 per barrel in 3Q2024, with the petroleum group accounting for 30% of Pakistan’s total imports in the first two months of FY25.
