Karachi: The Karachi Stock Exchange (KSE-100) is anticipated to experience significant growth due to continued monetary easing and the support of a new International Monetary Fund (IMF) program. The forecast comes amid a backdrop of falling inflation rates and favorable economic policies that are set to bolster investor confidence and market performance.
According to AKD Securities Limited, the State Bank of Pakistan (SBP) has accelerated its monetary easing efforts, implementing a substantial 200 basis points cut, bringing the policy rate down to 17.5%. This move is driven by a higher-than-expected decrease in inflation, which has been aided by delays in administrated energy prices and a decline in global food and oil prices. The Monetary Policy Committee (MPC) remains vigilant, maintaining a focus on achieving a medium-term inflation target of 5-7%.
Further economic relief is expected with the upcoming Executive Board meeting of the IMF scheduled for September 25, 2024, where Pakistan’s Extended Fund Facility (EFF) of US$7 billion is likely to be approved. This approval is critical as it will address concerns regarding Pakistan’s external account, especially in light of the US$26 billion in external debt repayments due in FY25. Robust growth in remittances and exports has helped keep the current account deficit under control, which stood at just US$0.2 billion in July 2024.
On the inflation front, there is potential for rates to fall below the SBP’s projected range of 11.5% to 13.5% for FY25, due to subdued demand, improved food supplies, and favorable commodity prices. This projection, however, hinges on achieving fiscal consolidation targets and the timely inflow of planned external funds.
From an investment perspective, the continuation of monetary easing and the anticipated IMF board approval are expected to keep equities on investors’ radar, with the KSE-100 currently trading at an attractive price-to-earnings ratio of 3.6x and offering a dividend yield of 13.5%. Despite some short-term concerns due to the upcoming FTSE rebalancing on September 23, 2024, sectors that benefit from monetary easing and structural reforms are recommended for investment.