“If the stock market is going up, you cannot do it by force,” said Prime Minister Imran Khan in a TV interview last week. “It shows that business has gained confidence,” he asserted.

From its trough of 27,229 points on March 25, the KSE-100 index has climbed to 43,741 points, a spectacular rise of 16,512 points in less than nine months. In percentage terms, it indicates mouth-watering returns of 61 per cent. At the current level, the benchmark index is at its 30-month high i.e. the highest point since the PTI government came to power.

No regional market can match that return. That surely is a reason for the market and investors to celebrate. There is an old saying: success has many fathers, failure has none. Therefore, the government, regulators and market stalwarts are falling over each other in claiming that the bullish trend is due to their wise handling of the market and the economy.

In truth, it is the hand of faith that has lifted the market from the deep dungeon. If it were really due to the investors’ exuberance over the great performance of the economy, the index should have shot up right from the start of 2020. The KSE-100 index was at 40,735 points on the first day of the year. Thus, it represents an increase of 3,006 points to date, producing a nominal return of 7.38pc in 2020.

Stockbroker Arif Habib believes the ongoing quarter will carry forward profitability growth in most sectors, including pharmaceutical, automobile, cement and steel

When the first case of Covid-19 was uncovered in Pakistan on Feb 26, the fear of the unknown sent the economy and the markets swirling down. Companies started to limit activities and close down their plants in the absence of workers who were confined to their homes. The movement of goods to markets was hampered and consumer demand vanished as people preferred to save cash for the unknown future. It was by the grace of Almighty that Pakistan was spared the devastations that the pandemic caused around the globe despite the public throwing caution to the wind by holding religious and political gatherings. The government did step in and it would be unfair not to acknowledge the benefits of the smart lockdown.

The limited number of Covid-19 daily cases and casualties slowly encouraged businesses to open up and life returned to normal to an extent. It was then that the participants in the stock market, including banks, companies, mutual funds, brokers, individuals and insurance companies, fell over each other in an effort to be the first to accumulate blue-chips across all sectors that had dipped to the lowest valuations. Thus, the market saw spectacular rallies for weeks and the index shot up at breakneck speed. Concurrently, for the same reason, corporate profits recovered and further helped the jump in stock prices. And here we are with the index at the 44,000-point level.

Arif Habib, former chairman of the Pakistan Stock Exchange (PSX), asserts that the major reason for the market performance is the healthy growth in corporate profitability in the quarter that ended on Sept 30. He believes that the quarter that will close on Dec 31 will carry forward the profitability growth in most sectors, including pharmaceutical, automobile and cyclical cement and steel. Banks are expected to release robust earnings charts and with the ban on dividend lifted, they will come up with healthy pay-outs.

Due to the continuous hike in international oil prices, oil and gas exploration and production stocks were on the rise. “Inventors are putting their money in PSX stocks due to attractive share valuations, low profit rates and returns offered by other investment assets and a flood of liquidity in the market,” said Mr Habib.

Raza Jafri, head of equities at Intermarket Securities, concurred by saying that the upcoming quarterly results are expected to show strong earnings growth across sectors. Consumer spending is rising and as relative political calm returns, it ends the uncertainty that prevents investors from entering the market.

But there are detractors who believe that bullishness in the market is not due to genuine reasons. Instead, it has been perpetrated by market manipulators. One such old soul asked to compare the sector-wise upsurge in stock values. He said that despite the hefty price rise of oil in international markets, the exploration and production stocks failed to perform.

Also, major shares in textile and insurance sectors have underperformed despite growth in exports. Many people who may have missed the rally in certain shares are attributing their unfathomable rise to manipulation by unscrupulous elements.

“When the tables are turned, the small investors who have put their lifetime savings in those stocks that appear to be most sought-after at the time will come to grief,” said a market watcher.

Three stocks in technology and communications have so immensely outperformed the market in a short time that the Securities and Exchange Commission of Pakistan took notice and enquired about the reasons for their unprecedented price hike.

Those outperformers are Netsol Technologies, TRG Pak Ltd and Avanceon Ltd in addition to National Refinery Ltd. But many major players do not subscribe to the manipulation theory. “What is will be and never get investigated and perpetrators taken to task,” said an old-timer to a complaining small investor. “The best way to make money in the market is to run with the hare and hunt with the hounds,” he suggested.

Published in Dawn, The Business and Finance Weekly, December 21st, 2020