Karachi, August 01, 2023 (PPI-OT): Jul-2023: Charged bulls hold ground
Jul-2023: Monthly gains at 16%, highest since Apr-2020...
The KSE100 Index crossed many barriers in Jul-2023, closing above 48,000 level - a 24-month high. The month recorded returns of 15.9%, registering among the best performing months in the last two decades and the highest monthly gains in terms of points (+6,582 points). This is a continuation of the rally that began in the last week of Jun-2023, as the benchmark index has so far jumped 20%+ in 23 trading sessions from its recent low on 23rd June, and 25%+ from its low made in YTD CY23 on 17th January.
The key factor supporting the rally this time has been revival of investor confidence post IMF's new Stand-By Arrangement program with Pakistan, signed at Jun-2023 end, leading to unlocking of external funds from other lenders and resultantly taking SBP foreign exchange reserves to 2x within a month.
Supported by hefty investor participation
The development fuelled investor confidence, also reflected in significant jump in market participation. PSX volumes jumped 2.2x MoM, where value traded average increased 2.4x MoM. As volumes reached almost 2-year high, investor segment that remained among the key net buyers were foreigners with net buying of US$14.9mn, highest monthly net buying witnessed in 4 years, and 5th largest monthly net buying in the last 6 years.
Sectors that have outperformed during this time have been Refinery, Banks, Oil and Gas Exploration, Power and Steel sectors.
Aug-2023 stores imperative events
With an eventful month starting, investors are expected to keep certain developments on radar. The key event this month will be a smooth transition of power from sitting government to Caretaker government in the next two weeks. Moreover, with status quo announced in yesterday's monetary policy meeting, receiving guidance of forward CPI average around 20% - 22%, investors will also be watchful for any potential inflationary measures, especially IMF pre-requisites. Any indication of higher CPI could lead to investor anticipation of continued monetary tightening - a much stressed pre-requisite by IMF.
Much room for rally, albeit subject to deliverables
While index multiples have reached close to 3x, they still reflect a discount of 40% from recent historical mean and 60%+ discount from 10-year average.
Extension of the ongoing rally has government's deliverables as a key base case, where announcement of increase in POL prices (Rs20, ~8%), albeit with a slight delay, is a point in case. On the other hand, near term triggers would include ongoing result season, where banking results are expected to surprise the market, in addition to their interim payout announcements.