Pakistan bourse to show robust activity in 2022

The Pakistan bourse is likely to attract huge investments, as the KSE-100 is expected to reach 55,000 points by December 2022, a research report by Arif Habib Limited (AHL) showed.

“A total of eight equity IPO [initial public offerings] transactions were witnessed in 2021 aided by a stark turnaround in the economy post Covid-19. Total transactions include six new listings (Panther Tyres, Service Global Footwear, Citi Pharma Limited, Pakistan Aluminum Beverage Cans Limited, Air Link, and Octopus Digital Limited),” the report showed.

“Two new GEM [Growth Enterprise Market] board items (Universal Network Systems Limited and Pak Agro Packaging Limited). All these companies listed on the Pakistan Stock Exchange managed to raise equity worth of Rs19.92 billion in 2021.”

Commenting on the IPO transactions, AHL chief executive officer, Shahid Ali Habib said, “We may struggle in the first two months of the year 2022 due to the hiked interest rate, but still expect eight news IPOs transactions in 2022 with expected capital raising of Rs14-$15 billion, while many IPOs are in the pipeline.”

“We expect an increased listing activity at the GEM board, as many tech IPOs are coming to the board. There will be one IPO from the textile sector, one from pharmaceuticals, automobile assemblers and one from the construction sector, which will be the first of its kind,” Habib added.

AHL head of research, Tahir Abbas said that the higher economic growth, policy settings normalisation, impressive corporate profitability, improved liquidity and prevailing attractive valuations are likely to reignite investors’ interest in the stock market.

Pakistan’s economy continues to grow at a much faster pace than expected. This robust domestic demand tagged with a sharp jump in the international commodity prices led to a strong uptick in imports and; hence, translated to a higher current account deficit, he added.

The external account is expected to remain under pressure in the near-term, however, recovering in the latter half of 2022.

Despite the current challenges on the external front, the current account deficit is expected to be fully financed from external inflows and the foreign exchange reserves are expected to remain at adequate levels through the rest of the fiscal year.

The revenue collection is expected to improve with the government intending to eliminate certain tax exemptions while curtailing current and development expenditures, the report stated.

The headline inflation number is expected to peak in January 2022 and come down there on, averaging at 10.7 per cent in fiscal year 2022, while the policy rate is likely to clock-in at 10 per cent by the end of current fiscal year.

Habib said, “While the outgoing year 2021 proved to be challenging for the market amid political and economic jitters, we expect the upcoming year to be a promising one.”

“We believe, [the] clarity on the economic front coupled with cheap market valuations and profitability prospects of the stocks is likely to rejuvenate the investors’ interest,” he added.

He further highlighted that given the swings endured by the market in the last six years, the index underwent a broad sell-off worth $2.3 billion from the foreign investors. As a result, foreign ownership as a percentage of free float market capitalisation declined significantly to its 10 year low, currently hovering at around $2.038 billion.

This number will further come down to $500 million, if we exclude the strategic holding, adding that the recent reclassification to Frontier Market from Emerging Market is likely to regain the attention of foreign participants.

The Earnings growth is expected at 12.4 per cent during 2022. “The jump in corporate profitability is expected to be broad-based with contributions expected from all sectors including Banks, E&Ps[Energy and Petroleum], cement, automobile assemblers, textiles, technology and oil marketing companies,” Habib stated.

“We believe a raft of positive macroeconomic developments are likely to emerge once the full impact of macro-economic policies start to kick-in. Additionally, with the interest rate expected to have almost peaked-out, investors are likely to rotate money into the stock market in a quest for higher yields which will provide opportunities for more companies to get listed on the exchange in 2022,” he added.

The report acknowledged the Securities and Exchange Commission of Pakistan’s efforts for promoting the development of the capital market of the country, with the initiatives such as direct listing, revamped regulatory framework, Professional Clearing Member initiative and other reforms.