KARACHI: Despite some serious concerns about the external financing gap and revenue shortfalls by the International Monetary Fund (IMF), the stock market maintained a record-setting streak, propelling the benchmark KSE-100 index to an all-time high above 95,000 in the outgoing week.

The market extended its week-on-week bullish momentum supported by positive economic data. However, investor sentiment was tempered by the likelihood of a mini-budget after the IMF team, which wrapped up its informal assessment of the economy on Friday, noted unsatisfactory performance on revenue collection, $2.5 billion external financing gap, failed privatisation of state-owned enterprises, etc.

However, the Fund’s appreciation of a 150 basis point increase in debt-to-GDP ratio from 8.8 per cent to 10.3 per cent and the Federal Board of Revenue’s (FBR) insistence that there would be no need for additional taxation measures soothed market sentiments.

The IMF would conduct its first formal review under the new 37-month $7 billion Extended Fund Facility in the first quarter of 2025 based on end-December performance for the release of the second tranche by March. As a result, the KSE-100 index closed at a record high of 94,763 points, marking a 1.6pc increase week-on-week.

Analysts say market may touch 127,000 by December 2025 on economic stability,fiscal consolidation

According to AKD Securities Ltd, the bullish momentum continued on the back of the accelerated pace of monetary easing by the SBP and IMF’s visit with a focus on structural reforms. The IMF mission’s discussions focused on the external financing gap and the revenue collection shortfalls.

The FBR officials assured the IMF that the revenue target would remain unchanged, attributing the shortfall in collection during the first four months of FY25 to inaccurate economic assumptions, particularly regarding GDP growth, imports and inflation.

They discussed both short-term and long-term measures to address the potential revenue shortfall, including raising taxes on sugary drinks and the import of machinery and raw materials. In the most recent Treasury bill auctions, the government raised Rs776bn, with the majority of the participation focused on the three-month T-bills. The yield on the shortest tenor decreased by 20bps, while the yield on the 12-month increased by 10bps.

Moreover, the sales of cars, light commercial vehicles, pickups and vans clocked in at 13,108 units in October, up by 27pc month-on-month and 112pc year-on-year, pushing up sales by 50pc to 40,693 units in 4MFY25.

The SBP held foreign reserves increased by $84m to $11.2bn in the week ending on Nov 8. On the currency front, the rupee largely stayed flat against the US dollar, closing the week at Rs277.67. The average trading volume was up 19.6pc to 878.5m shares week-on-week.

Sector-wise, transport, woollen, pharmaceuticals, vanaspati and allied industries and glass and ceramics were amongst the top performers, up 14.6pc, 11.8pc, 9.4pc, 8.2pc and 6.5pc week-on-week.

On the other hand, jute, mutual funds, automobile assembler, fertiliser and engineering were among the worst performers with a decline of 9.6pc, 3.3pc, 1.9pc, 1.6pc and 0.3pc week-on-week.

Flow-wise, major net selling was recorded by companies with a net sell of shares worth $11m. On the other hand, mutual funds absorbed most of the selling with a net buy of $13.9m.

According to AKD Securities, the market will likely maintain a bullish outlook next week. The continuation of monetary easing due to the disinflationary environment and improving the macroeconomic environment would make an investment in equities more appealing, currently trading at a price-to-earnings multiple of 4.2 times and a dividend yield of 10.8pc.

Index seen crossing 127k

Fuelled by economic stability and fiscal consolidation, the Pakistan Stock Market (PSX) is set to touch 127,000 by December 2025, suggesting a return of 37pc including a dividend yield of 10pc, forecast Topline Securities in its Pakistan Strategy released on Saturday.

The brokerage sees re-rating in the price-to-earnings ratio primarily on the back of improving macro indicators and falling bond yields, which is flushing more liquidity in equities, thus helping the current low PE to march towards its historic forward PE of 7x during the current IMF programme.

The key drivers would be a successful completion of the IMF review and passing of the FY26 budget in line with IMF guidelines, a credit rating upgrade for Pakistan, subsequently opening the doors for the launch of Eurobonds and sukuk, Pakistan relations with the new US government and successful privatisation of any bleeding state-owned enterprises, i.e. PIA, Discos alongside materialisation of Reko Diq deal.

Published in Dawn, November 17th, 2024