The benchmark index of the Pakistan Stock Exchange (PSX) inched up a little over six per cent per annum in the last three years. That’s only half of what cash-hungry commercial banks currently pay on term deposits.

The stock market performed even worse (negative 1.46pc) if you look at the KSE-100 index since the end of 2016.

Yet the PSX management and stockbrokers are unanimous in projecting a superb year ahead in terms of average returns, corporate profitability and new listings.

“The macro-level situation is gradually improving. The central bank’s forward-looking statement [on the key interest rate] is encouraging. The IMF [International Monetary Fund] programme is back. Oil prices aren’t coming down, but aren’t going up either,” said PSX Managing Director Farrukh H. Khan while speaking to Dawn in a recent interview.

Bullish brokerage houses foresee the index rising to 50,000-61,500 by the end 2022

He said the volatility in the stock market in the last few months will soon die down while the macro-economy will be “difficult, but smooth” in 2022. “Domestic liquidity is too high. Corporate earnings so far are exceptionally good. Those are the things that’ll ultimately support the direction of the market,” he added.

The PSX focused on putting in place the “building blocks” for infrastructure development and procedural convenience for investors in 2021 — measures so simple and straightforward that they should’ve happened 25-30 years ago, said Mr Khan.

Read more: 74 years of the PSX

Such regulatory moves include online brokerage account opening, sharing of know-your-customer or KYC data among banks and brokers and the launch of a professional clearing member regime that’ll handle compliance functions for small brokers while allowing them to focus on client acquisition.

As a result, the number of unique investors went up 14pc to 265,000 in 2021, reversing a five-year declining trend, he said.

“The capital markets are part of an ecosystem, which is in its infancy here. Insurance companies along with mutual and pension funds are the biggest investors globally. Retail investors get exposure to the capital markets through these players. But they’ve traditionally been small and have started growing fairly recently,” he said, noting that up to 400,000 people currently invest in stocks indirectly through mutual funds and insurance companies.

Bouncing back to highs

The KSE-100 index will likely reach 55,000 points by the end of 2022, up 23.8pc or 10,584 points from the Dec 30 closing, according to Arif Habib Ltd CEO Shahid Ali Habib.

Speaking to journalists at the release of his brokerage house’s investment strategy report for 2022, Mr Habib said profits of the constituent companies of the KSE-100 index are likely to grow 12.4pc in 2022. The rise in earnings will mainly originate from banking (18.3pc) and energy exploration and production (29.8pc) sectors, he added.

Other sectors that he believes will receive increased interest from investors in 2022 include cement, steel, oil marketing, textile and auto.

He said the largest public listing in the country’s history will likely take place in 2022. “We’re expecting about eight to 10 new listings this year,” he said, noting that his company is brokering a large public offer in the construction sector, which will be the first of its kind in Pakistan. Other sectors likely to have listings in 2022 are automobile assembling, pharmaceutical, chemical and textile, he added.

Foreign selling

Like preceding years, selling by foreign investors dampened sentiments on the stock market in 2021. Net foreign selling amounted to $365 million until Dec 27 versus $572m in 2020. The foreign ownership in Pakistani shares is hovering at a 10-year low of $2.1 billion or 17pc of the market’s free-float.

According to Topline Securities Associate Director of Research Umair Naseer, no major selling by foreign investors is expected in 2022. One reason for his optimism is that shares worth $0.4-0.8bn out of the $2.1bn are held by overseas sponsors or strategic investors. As such, they’re unlikely to offload these shares in the stock market.

In addition, some of the foreign holdings are in illiquid stocks like Nestle Pakistan, Colgate-Palmolive, Pakistan Tobacco and Murree Brewery. “These illiquid shares may be privately placed and not directly affect local liquidity [in 2022],” he said.

While Arif Habib Ltd is forecasting a 23.8pc jump in the KSE-100 index, AKD Securities is even more bullish on the equities market. It’s expecting the KSE-100 index to touch 61,500 points by the end of 2022, up almost 39pc from the current level.

KASB Securities has projected the index at 53,000 points while Insight Securities expects it to reach 50,000-55,000 points by the end of 2022.

But for those who take the sell-side research as gospel, here’s a piece of useful information: the same brokerages have been missing their annual index forecasts by as much as 8,000 points in the preceding three years at least. No one can time the stock market — let alone a broker whose paycheck depends on convincing you to trade shares even at a loss.

Published in Dawn, The Business and Finance Weekly, January 3rd, 2022