The abnormal strength of the stock market even as inflation and political uncertainty batter the Pakistani economy has baffled and excited many observers today.
The KSE-100 index rallied nearly 6% higher in the first hour of trade today as markets began spreading last week’s IMF glee all over the space, and it has since gained nearly 2,400 points to current levels above 43,933.
The expectation is today’s rally will buy investors the maximum amount of optionality by signaling a few more recoveries throughout July, aligned with market expectations, and will guide towards a big skip instead of an extended pause till December 2023 to sit and observe the effects of the IMF bailout and the State Bank of Pakistan’s (SBP) surprendre 22% interest rate to begin the new fiscal year.
Worries were amplified last month by concerns of a possible downturn in index growth, with investors eagerly awaiting a decision on the IMF cash and Finance Minister Ishaq Dar’s controversial budgetary exercise. Consequently, all indices managed to recover smartly today, led by an upside in banking, oil and exploration, and fertilizer stocks.
IMF’s nod remained key to calm market nerves, the new arrangement is expected to boost investor confidence, at least in the near future. Extended market rally and unlocking of valuations would likely be subject to execution of reforms yet again highlighted by the Fund, which include reforms in the energy sector, control on inflation and fiscal discipline.
PSX negated last week’s bearish formation formed by rising above 43,700+. It has now formed a bullish piercing pattern but needs to break out of the current band to show acceleration above 44,000 in the coming days.
Industry experts say that many investors are still wary of the $3 billion IMF financing. They said the approval and potential disbursal would offer more liquidity and open a path for other creditors to release last year’s $11 billion in pledges, but uncertainty over General Elections in October 2023 might offset market sentiments.
“A falling trend in SBP interest rates will also funnel additional capital to the stock market, opening the way for a +25% surge till June 2024,” they also opined.
Responding to a query by ProPakistani, JS Research said any close above 43,800 today will continue the bullish momentum with the next target falling between 44,700 to 45,000 which may further rise to 46,200, though a minor resistance at 44,300 cannot be ruled out. On the downside, today’s gap opening at 41,450 remains a key risk.
The KSE100 Index continues to trade at attractive multiples of sub 3x, pricing in lower investor confidence, which was due to the delay in the IMF deal. JS Global believes energy stocks such as OGDC, PPL, SNGP and MARI would garner interest and prefers UBL, BAFL, MEBL, HMB, BAHL and MCB as picks from the banking sector amid attractive valuations.
The Cement sector with MLCF, PIOC and KOHC is some of the top picks that might drive the benchmark index in the coming days. Bulls could seek additional rallies via the pharmaceutical sector amid talks on drug price hikes, where the research sees AGP Limited among the top picks.
Source: Pro Pakistani