Government-transition and PSX performance

More than 1/4th of the total market capitalisation of companies listed at the Pakistan Stock Exchange was added in three months — September, October, and November 2023.

Since then, for the last two months, the KSE-100 index has been within range, with the lowest at 59,170 and the highest at 66,426, as the market awaited clarity expected after the elections.

But the election results have only increased the uncertainty, as no single party won a majority, reflected in a deep negative opening on the first few days after the market opened on February 9.

This leads to the question as to what the future trend in the market could be. For this we need to evaluate what has led to gains in the past few months and the trend in the stocks’ performance.

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Most of the high gaining stocks (excluding dividends) since September 1, 2023, when the market started rising, are from the following sectors: (prices of February 7, 2024 / August 31, 2023)

• Automobile assembler (PSMC up:494%, SAZEW up:224%)
• Transport (PIAA up:195%, PNSC up:136%)
• Technology and communication (Airlink up:176%, PTC up:94%)
• Power generation and distribution (KEL up:147%, LPL up:61%)
• Sugar and allied industries (SHSML up:140%, HABSM up:92%)
• Refinery (PRL up:107%)
• Fertilizer (FFBL up:100%, EFERT up:62%)
• Oil and gas exploration companies (PPL up:77%, OGDC up:56%)
• Commercial banking (BOP up:77%, JSBL up:74%)

Some of these stocks, which are also constituents of the KSE-100, had major contributions in the 19,000-point increase in the index from September 1, 2023 to February 7, 2024. Only the top 5 stocks added 5,700 points to the index during this period; OGDC: 1,300 points, PPL: 1,200 points, HUBC: 1,200 points, EFERT:1,100 points, UBL: 900 points (approx.)

Throughout CY23, companies and foreign corporates were the major buyers and they continued to remain so during the last few months, however, major shift in the sentiment of insurance companies in the first half of August 2023, becoming net buyers from net sellers, fueled the upside movement in the market.

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Besides macro-economic factors, the positive sentiment in the market was built by multiple company specific factors, including significant dividend payouts and major buy-back announcements by large size companies, delisting of an automobile company, improved pricing of gas for its impact on circular debt, approval of refinery policy, progress on privatisation and expectation of resolution of circular debt through dividends.

Some of these factors influencing market sentiment will depend on the policy of the new government coming into power, while others are not directly related, which would keep those gains sticky.

The economic challenges ahead require a government that can continue reforms, including the completion of the second review under the stand-by arrangement of IMF by March 15, 2024 and successful negotiation of a new IMF program.

The ability of a coalition government to take timely and challenging decisions, especially when different parties make governments in provinces and center, will remain to be a subject matter.

The current base of the market is driven mostly by a wide range of reasons and improved performance of companies, however, the investors will remain cautious in setting the future direction, until clarity.

The article does not necessarily reflect the opinion of Business Recorder or its owners