KARACHI: The fiscal year 2024-25 is expected to be a year of strengthening investor sentiment in the equity market and the KSE-100 Index is expected to provide a return of 36 percent in FY25, analysts said.
“The index is buoyed by the potential negotiation of the IMF’s EFF programme, a downward trend in the policy rate and a shift in investments from fixed income to equities; all expected to lead to re-rating of the index,” a research report of Arif Habib Limited said.
The KSE-100 Index is expected to reach 109,250 points level by June 2025, it added.
The report said that the GDP expected to grow by 3.2 percent in FY25 on the back of improved agriculture yields, recoveries in industrial output and services sector growth. Pakistan is anticipated to enter a new three/four year Extended Fund Facility program with the IMF, likely amounting to $6-8 billion.
The report said that inflation is expected to average around 10.7 percent in FY25 while Pakistan’s current account deficit (CAD) for FY25 is expected to reach $2.6 billion as import-led demand rebounds. PKR is expected to average around 289/USD in FY25.
In FY25, earnings growth is estimated at 4.9 percent while ex banks and E&Ps earnings are expected to post 16 percent earnings growth. Additionally, the KSE-100 is trading at a 2025 price-to-earnings (PE) multiple of 4.2x, a valuation lower than the 5-Year historic average of 5.9x.
“We view FY25 to be a year of strengthening investor sentiment in the equity market primarily on the back of IMF program, multiples re-rating, timely fiscal adjustments, foreign investor interest, shift from fixed income to equities, tax efficiency, earning growth and the KSE-100 Index highly attractive within regional peers,” the report said.
The KSE-100 Index is trading at a forward 2025 P/E multiple of 4.2x, compared to a regional P/E multiple of 12.1, implying a discount of 65 percent over regional peers including the Philippines, Vietnam, Indonesia, India and China amongst others.
Pakistan’s equity market has experienced significant inflows in FY24 amounting to $141 million as compared to $1.6 million in the same period last year on the back of rise in investor’s confidence due to approval of Stand-By Arrangement (SBA) by IMF. Moreover, foreign equity holdings in Pakistan via Special Convertible Rupee Accounts (SCRA) improved from $1.0 billion in FY23 to $1.8 billion in FY24. This substantial increase is primarily due to currency appreciation, an increase in stock prices, and the buying of shares by foreign investors.
The local bourse is expected to garner further attention in FY25 as the KSE-100 Index remained the World’s best performing market with a solid return of 94 percent in FY24. Also, the KSE-100 index is the second most liquid market in the MSCI Frontier Markets (FM) space, with an average daily trading value (ADTV) of $55 million in FY24. Furthermore, the index ranks as one of the cheapest market in terms of price-to-earnings (P/E) ratio of 4.2x compared to regional market average of 12.1x, while also being attractive in terms of price-to-book (P/B) ratio of 0.8x vis-à-vis regional P/B average of 1.6x.
Copyright Business Recorder, 2024
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