Pakistan economy poised to bounce back, KSE-100 to hit 52,000 points by 2021

After sluggish growth, Pakistan’s economy is poised to bounce back in 2021, reports Pakistan Strategy Report 2021 by the Arif Habib Limited (AHL) Research.

As per the report, the surge in economic activity plus attractive valuations could bring 20 percent growth sending the Pakistan Stock Exchange (PSX) index to 52,000 by December next year.

“Led by strong earnings growth, economic growth, broadly stable external position, and cheap valuations, we expect the KSE-100 Index to generate a lucrative total return of 28pc (USD-based: 23pc) during CY21 taking index level to 52,000 by Dec’21,” the report said.

The report was of the view that it expects the economic activity in Pakistan to continue the robust pace it has shown over the last couple of months.

The GDP growth is expected at 1.8 percent during FY21. Whereas, The Current Account, while swinging into a deficit, is expected to be manageable (-0.9pc of GDP), attributable to consumption-driven, import-dependent GDP, the report stated.

The report expects no significant depreciation of the currency with PKR/USD 168 expected by Dec’21, owing to orderly market conditions, continued robust inflows from remittances and improved exports.

Housing finance, construction package and TERF (subsidized investment scheme for industries which expires on December 2020) are some of the government’s efforts to fuel investment activities in the country, it said.

The G20 debt relief and low-interest rates would allay the stress off debt servicing expenditure, the report pointed out.

Talking about the Sectoral Outlook; the report stated that in the cement sector, aggregate demand revival and government incentives for the construction industry should help propel dispatches growth. Whereas, in the auto sector, the stability in the PKR/USD parity, and strong volumes growth amid demand revival and low-interest rates should stimulate bottom-line of companies.

Talking about Oil Marketing Companies, the report was of the view that the recovery in global oil prices will result in inventory gains. Whereas, volumetric growth and margins revision are likely to boost earnings further.

The report highlighted that the country’s textile sector will benefit from the re-opening of the global economy, export orders are likely to continue piling up, while government subsidies on utilities should keep margins upbeat.

For the banking sector, the report expects that while lower interest rates are likely to compress NIMs and lead to lower earnings, we highlight that higher than expected recovery in credit demand, lower than expected NPL accretion, and dirt cheap valuations can fuel the price performance of banking scrips.

Talking about the domestic political outlook, the report stated: “In the domestic political arena we expect no major threat to the stability of the government. Brief jolts by the opposition may continue in the shape of rallies, but we do not expect any serious impediment to the continuity of the current democratic set-up.”

However, the report does highlight the “Pakistan Democratic Movement” (PDM) as a credible force of the opposition that can keep the government on the edge of its seat.

“The political strength of the government is expected to solidify further in March when PTI is expected to emerge as the leading party in the Senate elections. The likelihood of that happening has increased following its victory in the Gilgit-Baltistan elections,” it said.

Regarding Pakistan’s exit from FATF Grey List, the report was of the view that “we think that an exit from the FATF grey list in February has become quite likely. This would be a significant stimulant for confidence in the equity bourse.”