Pakistanis have been rejoicing on Pakistan Stock Exchange’s ongoing bullish trend for the past couple of days. There has been a debate on whether the soaring PSX is an indicator for economic growth or just market speculation, but one thing has been unanimously agreed and that is that the PSX’s upward trend shows the bullish mood of the market.
The month of May has been termed by experts in Pakistan as “a month of all-time high volumes”. According to the analysis presented by different sources, it is clear the KSE-100 index gained 8.1 percent during the recent month of May, the highest in 9 months.
As Pakistan has surfed rather safely through the third wave of the pandemic, macro indicators like GDP growth rate of 3.94 percent and both capital inflow in form of remittances, with value reaching $24 billion in 10MFY21 and investment in government bonds under Roshan Digital Accounts increased, the investors returned to the market and their reaction was seen in the form of PSX climb in the last week of May 2021.
A market expert and prominent businessman Aqeel Kareem Dedhi claimed on 26th May at Dr. Moeed Pirzada’s program ‘Hard Talk Pakistan’ that the country will post more than 4.5 percent growth in the current fiscal year.
Read More:Pakistan to post 4.5% GDP growth rate this year, claims Aqeel Karim
Speaking to GVS, AKD’s economist Hamza Kamal said that the government’s estimation of the GDP of 3.94 is conservative, and according to AKD’s recent estimates, this year’s GDP would top at 4.6 percent.
The industry-favoring budget rumors in the market are also doing much to attract investments in the sector. This can be seen in the Engineering and Cement sector which saw 18.1 percent and 12.3 percent growth month-on-month, respectively.
This claim was supported by Mr. Kamal, who said that the government is likely to not take any strict revenue measures and continue with non-intervention in the sectors which has led to a positive attitude of the market towards the KSE-100.
It has been reported by Bloomberg too that the finance ministry is considering a stimulus package to support the economy, which can be monetary, fiscal, or both.
According to the AKD securities’ analysis, the OMCs gained 14.3 percent MoM on the back of the potential release of the first tranche by Govt. by the end of the week to clear the circular debt, as explained below.
According to the national news, the Ministry of Finance is likely to pay the first installment of Rs90 billion to 35 independent power producers (IPPs), and this was reflected in gain in the scrips of Nishat Chunian Power, Packages Limited, Kot Addu Power, and Hub Power.
Read More: FBR crosses Rs4 trillion revenue collection for the first time in May 2021!
According to a tweet by Topline Securities, May 2021 saw an all-time high average volume per day, with 774 million shares. It is up 276.7 percent compared to May 2020, when the average traded volume was 206 million shares, and up 118.6 percent MoM compared to April 2021.
Highest average monthly average volumes at PSX
Average monthly volumes at PSX during May 2021 clocked in at 774mn shares. Average volumes in May 2020 were 206mn and volumes in Apr 2021 were 354mn shares.@pakstockexgltd @Hammad_Azhar @Asad_Umar @shaukat_tarin pic.twitter.com/du4OtUNmoB
— Topline Securities (@toplinesec) May 31, 2021
AKD expects the KSE-100 index to continue climbing as liquidity flush is prevalent in the market, and the research shows support for the bullish run in the Cement, Steel, and Construction sectors of the economy.
The fact that the bullish rally was seen among the main sector of Pakistan(construction-allied) shows that the PSX soaring is not just market speculation, but the economic factors’ impact on the KSE-100.
Another factor that impacted the bullish trend was the State Bank’s decision to hold the interest rate at 7 percent in the recent Monetary Policy Committee meeting, meaning more investment in the economy. Even if there is an uptick in interest rate, it would be very minimal as assured by the SBP’s recent MPC statement.
Similarly, the recent FBR indication of the third consecutive month of exceeding the revenue collection target has been viewed positively by the market.
According to AKD research, in terms of Capital flow, foreigners cumulatively took out a massive $43.4 million out of the market. Similarly in the Exploration and Production sector foreigners offloaded $35.9 million and $47 million in other sectors, including a BYCO sponsor divested its holding of $7.4 million. However, they bought positions in cement with a net buy of $32 million and technology stocks worth $11.4 million.
The selling trend in the market was absorbed by Individuals and Others with a cumulative net buy of $43.2 million. According to Mr. Kamal, the E&P divestment was expected and was part of the rebalancing of the companies.
Upon the question of long-term expectations in the market, AKD’s expert said, “as expectations are that inflation would be decreasing in the near future, along with an upward trend in the economic activity in the country and high liquidity, the economy will grow in the long term, and thus we expect the same of the market”.
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Good news from different independent resources is also a factor that should not be forgotten. On 27th May, Fitch gave Pakistan a B- rating with Stable Outlook.
According to Fitch’s research, Pakistan has seen a decline in external vulnerabilities facilitated by adherence to a market-determined exchange rate regime, which allowed shock absorption during the pandemic.
Fitch has forecasted, “official FX reserves (excluding gold) will reach USD17.4 billion (3.2 months of current external payments; 2021 B median: 4.7 months) by the end of the fiscal year to June 2021 (FY21) from USD13.3 billion at FYE20”, which contributes to the positive economic outlook.
The credit rating agency estimates that Pakistan’s current account deficit would narrow to 0.5 percent. According to State Bank Data for July-April Fiscal Year 2021 the current account is in surplus of 0.3 percent of GDP.
This is an improvement over FY20 and FY19, where the current account showed a deficit of 2.4 and 4.8 percent of GDP, respectively. This increase in the inflow of money into the economy is a reassuring factor for the investors in the market.
Mr. Hamza Kamal from AKD listed this positive CA surplus as a factor for an attractive market for investors and in the end, a soaring KSE-100.
Similarly, another renowned credit rating agency Moodys said that Pakistan’s “b2” institutions and governance strength that balances still weak executive institutions and fiscal policy credibility and effectiveness against a lengthening track record of effective checks and balances and judicial independence, as well as increasing monetary and macroprudential policy effectiveness.
Read More: Pakistan’s credit profile reflects economic strength: Moody’s
All these factors show that Pakistan’s Financial market is not just responding to random market speculation but different factors in the economy and the government’s recent performance figures have inculcated a positive feeling about the economy among the leading companies in Pakistan.