Monetary easing, improving macroeconomic outlook boost equity investment appeal: report

The continuation of monetary easing amid a disinflationary environment and an improving macroeconomic outlook is expected to enhance the attractiveness of equity investments, according to a note by AKD Securities.  

The market remained volatile during the week but ended the week with another major increase in the KSE-100 index, registering weekly gains of 5,248 points, and closing at a record high of 114,302 points, marking an increase of 5% WoW. 

With the CPI remaining below the 5% threshold and T-bill yields in the recent auction dropping to 12% for the 3 months and 6 months paper, down 100 bps and 89 bps respectively, investor optimism has been bolstered, fueling expectations for continued monetary easing in the upcoming MPC meeting on December 16, 2024. 

However, news about the potential imposition of additional taxes on banks led to the banking sector eroding 2,292 points from the index throughout the week.

 Additionally, automotive industry sales for November 2024 clocked in at 13,856 units, up 37% YoY. On the macroeconomic front, worker remittances clocked in at $2.9 billion, up 29.1% YoY. The SBP-held reserves increased by $13 million WoW, ending the week at $12.0 billion as of December 6, 2024. 

Moreover, average daily trading volume remained lower, down by 19.0% WoW, clocking in at 1.4 billion shares, compared to 1.7 billion shares traded in the earlier week.

On the currency front, the Pakistani rupee remained flat against the greenback throughout the week, closing the week at 278.12 against the US dollar. 

Sector-wise, Oil & Gas Exploration Companies led the performance, rising 22.7% week-on-week (WoW), followed by Mutual Funds (14.2%), Oil & Gas Marketing Companies (12.3%), Refineries (12.2%), and Miscellaneous sectors (9.5%). 

On the other hand, Commercial Banks recorded the sharpest decline, falling 8.1% WoW, along with Modarabas (1.4%), Textile Spinning (1.1%), Synthetic & Rayon (0.6%), and Automobile Parts & Accessories (0.3%).

In terms of market flows, brokers recorded net selling worth $3.3 million. Mutual Funds absorbed the bulk of the selling pressure, with a net buy of $8.6 million.

Company-wise, the top performers during the week were Mari Petroleum (up 42.9% WoW), Shell Pakistan (24.6%), Attock Refinery Limited (24.6%), Nishat Mills Limited (24.0%), and Pakistan State Oil (20.1%). 

Conversely, the biggest laggards included Allied Bank Limited (down 12.2% WoW), Bank Alfalah Limited (11.3%), Meezan Bank Limited (10.5%), Bank AL Habib Limited (10.0%), and The Bank of Punjab (9.3%).

According to the brokerage report, the continuation of monetary easing, driven by a disinflationary environment and improving macroeconomic conditions, is expected to enhance the appeal of equities, which are currently trading at a P/E of 5.7x and a DY of 8.7%. 

These factors, combined with a declining external financing requirement under the IMF program, are likely to sustain foreign investor interest.