KARACHI: The year 2021 remained very tough for the Pakistan Stock Exchange (PSX), as the benchmark KSE-100 index underperformed in regional market and other asset classes despite record volumes and IPOs.

The benchmark KSE-100 index closed at 44,596 points, up 841 points. The KSE-100 index was up only 2.0 percent in Pak Rupee term and down 8.0 percent in US$ term in 2021 which was much lower than last 30-year CAGR of 12 percent.

The KSE-100 Index is now 16 percent down from its 53,000 peak seen on May 24, 2017. Market cap is down 14 percent in a year in US$ terms. Market cap is now $43 billion compared to all time high of $100 billion seen on May 24, 2017.

The KSE-100 index underperformed in regional market posting negative 8.0 percent return in US$ terms compared to its regional players like Sri Lanka, India, China etc. The index also underperformed MSCI frontier Market (MSCI FM), which gained 16 percent. On other hand, MSCI Emerging (MSCI EM) fund was down 5.0 percent.

Similarly, all other asset classes (Crypto, Real Estate and Roshan Digital), performed much better than the equity markets. Cryptocurrency, which is not officially recognised by Pakistan, remained the best performing asset class in Pakistan in 2021, posting return of 79 percent in PKR terms. This was followed by property and Roshan Digital Dollar Certificate which posted returns of 23 percent and 18 percent, respectively, in PKR terms.

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“The country’s weak external account situation and rising interest rates led to reduced interest in Pakistan equities,” Saad Ziker at Topline Securities said.

To note, the KSE-100 index peaked in the first half of the year 2021 at 48,726 index level on June 14, 2021 and since then it is down 10 percent due to major economic concerns. The SBP has increased the policy rate from 7.0 percent in May 2021 to 9.75 percent in December 2021 to address concern of rising inflation coupled with external account challenges.

The year 2021 saw record volumes during the year as average traded volume (ready/cash) at PSX was up 44 percent on year-on-year basis to 474 million shares per day. Similarly, average traded value at PSX was up 38 percent to Rs17bn/day which was highest since 2007. In futures market, total traded value and volume were also up by 87 percent and 34 percent to Rs9 billion and 136 million, respectively.

Huge activity was witnessed in mid and small cap companies led by retail investors which drove the overall trading activity at the bourse at PSX in 2021.

During 2021, foreign corporate selling continued to impact PSX sentiment as net foreign selling has clocked in at $359 million till December 30, 2021 as compared to $572 million in the year 2020.

Saad Ziker said that during the past seven years, total net foreign selling has been recorded at $2.6 billion, which is around 15 percent of average free float market capitalisation. Foreign selling in 2021 was mainly led by Banking, Oil and Gas Exploration and Fertiliser sectors, amounting to $167 million, $60 million and $55 million, respectively.

As per recent SBP data, total foreign ownership in Pakistani stocks has now reached at a decade low of $2.1 billion (17 percent of free float) from a peak of $8.3 billion on January 06, 2017 (30 percent of free float) due to non-stop selling by foreign funds.

During the year, Pakistan was also reclassified from Emerging Market to Fronter Market by MSCI in 2021 as Pakistani companies did not consistently meet the MSCI size and liquidity criteria.

The country saw gross and net outflows of $107 million and $58 million, respectively on rebalancing date that was November 30, 2021.

“With Pakistan’s entry into MSCI FM and its reduced weight in FM (weight of 1.5 percent), we do not expect any major inflow/outflow in 2022,” Saad Zakir said.

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Foreign selling was absorbed by locals which was led by buying by local Individuals and Companies. Net buying by Individuals and Companies clocked in at $236 million and $108 million, respectively. Within locals, Brokers and Insurance sectors were net sellers with $33 million and $20 million, respectively.

Technology and Textile Spinning were the top performing sectors in the year 2021 posting returns of 40 percent on year-on-year basis and 37 percent on YoY, respectively. On the other hand, Tobacco and Transport sectors remained the worst performing sectors posting decline of 31 percent on YoY and 27 percent on YoY, respectively.

Technology sector in line with global trend continued to remain investor’s favorite sector post pandemic. Pakistan’s rising IT exports, government focus to facilitate IT sector, and PKR devaluation have led to higher sales and profitability for the tech sector. Textile spinning sector also posted strong gains in 2021 amid rising exports, record cotton prices and huge inventory gains during the year.

In contrast, Tobacco sector remained impacted due to increasing competition from illicit and unbranded cigarettes available at discounted rates (due to duty and tax avoidance).

Refinery sector was also amongst worst performing sectors primarily due to delay in refinery policy and news reports of withdrawal of certain incentives that were previously announced.

With respect to stock performance, Telecard (TELE) was the top performing stock of the year as value increased by over 5x. Investors were excited about the company prospects on upcoming likely IPO (likely) of its wholly owned subsidiary “Supernet” coupled with long term business contracts to Supernet supported sentiments in TELE.

Likewise, TPL Properties (TPLP) also registered strong gains in 2021 by posting 3x returns on YoY. The company has generated an ROI of 130 percent on the sale proceeds of its property project Centre point. Also, TPLP has also planed to launch its REIT in ongoing FY22, which generated investor’s interest throughout the year.

Hascol Petroleum (HASCOL) and Azgard Nine (ANL) remained worst performing stocks.

After a gap of six years, Pakistan Equity Market witnessed record offerings in 2021 where the bourse witnessed 8 IPOs (including 2 GEM board offerings), highest after 2015.

Total amount raised from investors from the 8 offerings clocked in at Rs20 billion in 2021. Interestingly, all the 8 offerings were oversubscribed and received great response from investors inspite of weak performance by the index during the year. Out of the said IPOs, Octopus Digital (OCTOPUS) remained the most popular IPO with bids of over Rs30 billion as compared to total issue of only Rs1.1 billion posting return of 93 percent since listing date. This was followed by City Pharma (CPHL) which posted return of 24 percent since its listing date.

PSX saw major development as companies started offering shares through GEM board. The aim of GEM board was to encourage Small and Medium Enterprise (SMEs), greenfield projects and tech companies to list on the exchange and raise capital.

The two listings on GEM board were Pak Agro Packaging (GEMPAPL) and Universal Network Systems Limited (GEMUNSL). The two companies raised over Rs644 million from the two GEM board offerings.

“If macro economic situation in Pakistan stabilises post resumption of IMF programme, we will continue to see new offerings in 2022,” he said. Though, there are few IPOs in pipeline as companies plans to expand their capacities but the outlook on IPOs will be dependent upon the overall economic and market conditions in 2022. “We eye KSE-100 index target of 53,000 by December 2022,” Saad Zakir said. This is based on target market PE of 6-7x seen in times of high interest rates.

Copyright Business Recorder, 2022