ISLAMABAD, The Karachi Stock Exchange's benchmark KSE100 index has successfully reclaimed its all-time high of 53,000 points, a milestone last achieved in May 2017. This significant achievement comes after a period of 6.5 years, marking a notable moment in Pakistan's financial markets. However, despite this index milestone, the market capitalization of the Pakistan Stock Exchange (PSX) stands at Rs 7.7 trillion today, compared to Rs 10.4 trillion in May 2017. This discrepancy raises questions about the underlying factors affecting market valuation.
According to JS Research, indicates that dividends are a major factor contributing to the decline in market capitalization. Approximately Rs 2.6 trillion in dividends have been paid out since 2017. Other factors such as rights issues contributing Rs 224 billion, new listings adding Rs 204 billion, and share buybacks resulting in a reduction of Rs 28 billion have had a lesser impact on the market capitalization. When considering the price change excluding dividends, there is a decrease of Rs 520 billion.
Further analysis into the decline of market capitalization from US$ 100 billion to the current US$ 27 billion shows that dividends account for a US$ 16 billion decrease. A significant US$ 46 billion decline is attributed to the Pakistani Rupee's depreciation of over 60%. The report highlights that, when adjusting for dividends, the combined market capitalizations of PSX companies are now similar to their May 2017 levels. Intriguingly, the earnings of these companies have grown by 2.5 times since 2017. However, this increase in earnings has not been reflected in the market capitalization, indicating a significant impact of macroeconomic concerns on investor sentiment.
Looking forward, the report suggests that the journey beyond the 53,000-index level will largely depend on the alleviation of macroeconomic headwinds and the restoration of investor confidence. To achieve sustained growth, the market needs to price in not only future earnings per share growth but also the backlog of earnings growth from the past seven years.