Arguably the most successful investor of all times, Warren Buffett, once said there was no way “to predict what the market would do in the short term”. The same holds true for the Pakistan stock market in 2021.

What really is certain is the uncertainty that pervades the market. One thing about stock market analysts and strategists is that all of them tend to be optimistic. The KSE-100 index has been targeted and visualised to settle between 52,500 points and 60,000 points by the end of December. The index is at 43,418 points. Taking the mean projection of 56,200 points, the projected return is 29pc. Keeping in view the fact that the index reached 43,417 points on Dec 24 from 40,735 points on Jan 1 (up 6.58pc), the prediction of researchers and strategists seems overly optimistic. But the livelihood of a broker depends on selling optimism, says a professor who teaches investment analysis in a local business school.

That said, most analysts’ forecasts are well-explained and do not necessarily mean to mislead readers and investors. There are too many uncertainties that will determine how the market will sail through 2021. The course of Covid-19 remains uncertain. The efficacy of vaccines will determine lockdowns and shutdowns that will set the direction of the global and local economy. There is uncertainty over the political environment as the Pakistan Democratic Movement (PDM) is resolute in dislodging the government while the rulers are equally determined to complete their five-year term.

Although cement shares did good in 2020, they are likely to perform well in 2021 as well. The price of coal, a major raw material for cement makers, is declining

Other factors that can set the direction of the market in the year ahead include the Financial Action Task Force (FATF), availability, efficacy and distribution of the Covid-19 vaccine, increase/decrease in the number of coronavirus cases, stability of the rupee and interest rates, trend in international oil prices and the IMF’s loan programme.

Market gurus say that the bullish view was supported by the simple argument that the existing valuations are attractive from both historic and regional perspectives. The spectacular rally that saw the index make a staggering recovery of 16,188 points between March 25 and Dec 24, providing a mouth-watering return of 59pc, was led in great measure by the outstanding performance by the technology and communication sector as well as second- and third-tier stocks in other sectors. Bluechips, the high-priced growth stocks yielding dividends of companies with strong balance sheet, posted a lukewarm performance. Those companies are banked upon to lead the rally in 2021.

Such sectors include the heavyweight oil and gas exploration, oil and gas marketing companies, banks, textiles and fertilisers. Although automobiles and pharmaceuticals made some decent gains in the later part of the year, they appear to have considerable space to rise. The performance of the index heavyweight oil and gas exploration sector depends on international oil prices. The performance of banking stocks will depend on interest rates, savings and growth in deposits. The settlement of the outstanding circular debt will reflect upon the performance of energy stocks.

Although cyclical cements did well in 2020, they are likely to put up a good performance as the price of coal, a major raw material, is declining. Interest rates remain low. Aggregate demand grows when construction activity booms. Automobiles are also likely to make good gains on the back of expected economic recovery. Textiles picked up towards the end of last year and can likely outperform the index in 2021 in the presence of export-

oriented incentives. Fertilisers are picked up by investors for their dividend yields. Finally, banking stocks can attract investors due to their underperformance in 2020 as well as the possibility of growth in deposits and improving interest rates.

Foreign investors continued to sell equities in 2020. The outflow to-date (Dec 24) stood at the staggering sum of $525m. Individuals absorbed foreign selling in 2020. In 2021, the outflow of another $250-300m is expected that will hopefully be picked up by institutions and mutual funds.

Published in Dawn, The Business and Finance Weekly, January 4th, 2021