Stockbrokers are telling investors to jump right in if they want their investments to grow 10-15 per cent in the next couple of months.

The ever-optimistic lot of stockbrokers have been predicting nothing less than a bull run for at least five years now. This time it’s real though, they say. The index will rise and investments will grow despite the wild swings last week that saw the benchmark nosedive to 43,902 points on Monday only to rise in subsequent sessions to 44,445 points.

“Investors must take advantage when valuations are down. Anyone who doesn’t invest now will miss the opportunity of a lifetime,” said Shahid Ali Habib, CEO of Arif Habib Ltd, while speaking to Dawn. “I think the index will soon cross 48,000 points,” he said while forecasting an increase of between 10pc and 15pc in share prices by the end of 2021-22.

The KSE-100 index has posted a negative return of 0.66pc in the last 12 months. It has lost 0.34pc since the beginning of this calendar year.

A research report prepared by Arif Habib traced back market performance from 2013 to date and concluded that even when the index dipped by 10pc or more, the price-to-earnings multiple would still be higher than the one prevailing right now, indicating that it is a good time to buy stocks

The key to improvement in market conditions is foreign participation, Mr Habib said, noting that the Pakistan Stock Exchange (PSX) needs “more and more” international investors with a long-term view, which will give confidence to local investors as well. “Our market is cheap in terms of the price-to-earnings (PE) multiple,” he said while referring to a widely used ratio that measures a company’s current share price relative to its earnings per share (EPS).

A higher PE multiple signifies a share is expensive while a lower multiple means the opposite. The market is trading at a trailing PE multiple of 4.6, he said. “We’ve historically had an average multiple of eight.”

A research report prepared by Mr Habib’s brokerage traced back market performance from 2013 to date and concluded that even when the index dipped by 10pc or more, the multiple would still be higher than the one prevailing right now. For example, it cited the outbreak of Covid-19 in early 2020 (PE of 7.2), Indo-Pak border tensions in early 2019 (PE of 8.1) and the last interest rate hike and rupee depreciation towards the end of 2018 (PE of 8.8). “We do not foresee any major downside to the index,” the research note said.

Speaking to Dawn, Topline Securities CEO Mohammed Sohail said he expects a “partial recovery” in the benchmark index, which may go up to 50,000 points by the end of June.

“The country needs clarity on two fronts: economic and political. It looks like we’ve got political clarity to a large extent. Now our biggest worry is the rapid decline in reserves,” he said.

The country’s foreign exchange reserves have dropped 23pc in the last couple of months to $17.5 billion.

Mr Sohail said the stock market is looking forward to the new government taking steps to arrest the rapid fall in foreign exchange reserves. It’ll be better for the PSX if the new government moves swiftly to convince the International Monetary Fund (IMF) for the release of funds under the ongoing loan programme, he said.

In addition, the new government should negotiate with friendly countries like China, Saudi Arabia or the United Arab Emirates for economic relief packages and rollover of maturing debt, he added.

With respect to the deteriorating outlook on inflation and the consequent hike of as much as 250 basis points in the key interest rate, Mr Sohail said a select few sectors of the PSX stand to benefit from the rare move by the central bank.

“In addition to commercial banks whose share prices are likely to appreciate following the interest rate hike, I think companies in textile, technology and exploration and production sectors will also see a positive trend. They’ll be better off because they either earn in dollars or have lots of excess cash sitting on their balance sheets,” he said.

Mr Sohail also advised the PSX management to simplify the documentation process for account opening and due diligence — something that’s become exceedingly tedious in the past couple of years and is inadvertently pushing potential investors away from the stock market.

Published in Dawn, The Business and Finance Weekly, April 11th, 2022