Equities to rally on IMF programme resumption

Equities to rally on IMF programme resumption

Equities to rally on IMF programme resumption
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KARACHI: The Pakistan Stock Exchange (PSX) likely to open higher following positive cues from the upcoming IMF programme, analysts said.

The witnessed dull trading activities during the week ended January 28, 2022 as the investors remained concerned over the uncertainty regarding the International Monetary Fund (IMF) $1 billion tranche along with rising oil prices in the international market.

The KSE-100 Index ended the week by gaining 60 points to close at 45,078 level. However, all shares average traded volume during the week remained 7 per cent lower to stand at 187 million shares/day, as compared to 201 million shares traded during the previous week.

An analyst at Pearl Securities said that during the week, the market witnessed profit taking sessions along with the dull sentiments due to the political uncertainty, delay in the IMF programme, rising commodity prices and concerns over interest rate hike by US Fed Reserve.

“Furthermore, the Senate has passed the State Bank of Pakistan (SBP) Amendment Bill 2021. Going forward, we expect the market performance to trigger ahead of bill approval and positive cues over the upcoming IMF programme.”

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Analysts anticipate a relief rally at the bourse on the back of the International Monetary Fund (IMF) programme resumption and single-digit policy rate for the time being.

Analysts at Sherman Securities believe that the Pakistani market will maintain a 40 per cent discount to historical 10-year average PE of 8.6x as seen in 2021, unless foreigners re-enter the market.

“Major reasons for the market to maintain 35 to 40 per cent discount in 2022, are persistent economic concerns as investors would closely monitor external accounts situation arising from international commodity prices and major economic indicators continue to lag behind their 10-year average,” they said.

Nonetheless, despite record increase in the commodity prices, the highest corporate earnings growth of 47 per cent in 2021 was witnessed. Though, the same is expected to slow down to 12 per cent amid rising operating costs, which is still slightly better than the 10-year average of 10 per cent.

Going forward, cement, rebar and commercial banks are likely to outperform in 2022; cement on better gross margins amid anticipated decline in coal prices, whereas rebar on firm international prices resulting in continuation of higher margins. The commercial banks to outperform based on higher net interest margins (NIMs) beyond the second half of 2022.

Key points

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Market will maintain a 40 per cent discount to historical 10-year average PE of 8.6x as seen in 2021, unless foreigners re-enter the market.

Despite record increase in the commodity prices, the highest corporate earnings growth of 47 per cent in 2021 was witnessed.

The commercial banks to outperform based on higher net interest margins beyond the second half of 2022.

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