Karachi: Investor optimism is likely to be reinforced with the anticipated approval of the $7 billion Extended Fund Facility (EFF) by the International Monetary Fund (IMF) executive board later this month, along with ongoing monetary easing and improvements in the country’s credit rating. The Karachi Stock Exchange 100 Index (KSE-100) recorded a modest 0.8% month-on-month return in August 2024 as investors awaited the IMF board’s decision. Market liquidity showed improvement, with average trading volumes rising by 33% month-on-month to 730 million shares, while the traded value also saw a slight increase to 0.3%.
According to AKD Securities Limited, the country’s upgraded rating by global credit agencies, attributed to better prospects for external financing and a high probability of the IMF program’s approval, has maintained foreign investors’ interest in local equities. Foreign investors increased their equity exposure by $9.3 million in August, bringing the cumulative year-to-date buying to $102.9 million. The Exploration and Production (E and P) sector received the highest inflows of $3.8 million, followed by $3.0 million in Technology and $2.7 million in Food and Personal Care. Other sectors, including Banks and Power, also saw inflows, while foreign investors reduced their exposure in Cement, Fertilizer, and Oil Marketing Companies (OMCs).
Institutional investors remained net sellers, securing higher yields in fixed-income instruments amid expectations of continued monetary easing due to falling inflation and an improving external account position. Institutions sold $32.6 million worth of shares, with the majority of the selling coming from Mutual Funds, Insurance, and Banks. Conversely, individual investors supported the market with a net buying of $20.3 million in August 2024.
Pharmaceuticals and E and P emerged as the top-performing sectors in August, posting returns of 11.4% and 8.9% month-on-month, respectively. The Pharmaceuticals sector benefitted from strong profitability due to the deregulation of non-essential products and the approval of hardship products, while the E and P sector rallied in anticipation of improved cash flows. Meanwhile, Technology, Chemical, and Refinery sectors also showed positive returns, whereas Banks, Textile, and Cement sectors reported negative returns.
The IMF executive board’s approval, along with continued monetary easing, is expected to keep equities in focus. These factors, combined with an improving external account position and better credit ratings, are anticipated to sustain foreign interest in the local market. However, the upcoming FTSE rebalancing on September 23, 2024, may present short-term concerns, although these are expected to be mitigated by minimal holdings in FTSE Emerging Markets-related funds and increasing weight in the MSCI FM Index. AKD Securities recommends sectors that benefit from monetary easing and structural reforms, with top picks including OGDC, PPL, MCB, UBL, MEBL, FFC, PSO, LUCK, MLCF, FCCL, and INDU.