Karachi: The KSE100 index soared to a record high of 82,074 points this week, registering a robust 3.5% gain, fueled by significant policy developments and positive economic indicators. The market’s upward trajectory was propelled by the recent interest rate cut and Pakistan’s inclusion on the IMF executive board agenda, fostering a favorable environment for high-dividend-yielding sectors.
According to AKD Securities Limited, the Pakistani stock market’s bullish performance was underpinned by sectors like Banks, E&P, and Fertilizers benefiting from the rerating driven by declining fixed-income yields. Contributing to the positive sentiment was the announcement of a current account surplus of US$75 million for August 2024, supported by a 40% year-on-year increase in remittances. Additionally, textile and food exports witnessed substantial growth during the month, further bolstering economic optimism.
On the domestic front, the government’s continued reduction of POL prices, marking the fourth consecutive cut, has played a crucial role in mitigating inflationary pressures. Furthermore, the monetary landscape is adjusting to the recent rejections in the T-bill and PIB auctions, which, coupled with falling yields, are shifting liquidity towards equities. The international financial scene also contributed to investor confidence as the U.S. Federal Reserve implemented a significant interest rate cut of 50 basis points, bringing rates to between 4.75% and 5.0%.
Despite a decrease in market participation, with average daily traded volume dropping to 469 million shares from 607 million the previous week, the overall market sentiment remains robust. The depreciation of the Pakistani Rupee stabilized, closing the week at 277.8 against the US Dollar. Key developments during the week included the Asian Development Bank’s assurance of US$2 billion in annual loans to Pakistan and a rise in foreign direct investment to US$350 million for the first two months of fiscal year 2025.
In sectoral performance, Pharmaceuticals, Commercial Banks, and Fertilizers were among the top gainers, while Woolen, Cable & Electrical Goods, and Engineering sectors lagged. Noteworthy individual stock performances were observed in MARI, SHFA, and HBL, among others.
Looking ahead, the IMF Executive Board’s approval and ongoing monetary easing are expected to keep equities attractive, with the market trading at a favorable P/E ratio of 3.7x and a dividend yield of 13.2%. Sectors that stand to benefit from monetary easing and structural reforms are recommended for investment, with high-dividend-yielding stocks anticipated to perform well as yields align with fixed-income returns.