KARACHI: The KSE-100 index is on an eye-popping run: It closed at a record high on Thursday, crossing the 100,000 mark two days after a one-day drop of 3,506 points, an all-time high.
The gains — the market gained 813.52 points to close at 100,082.77 — pointed to an optimistic outlook for the country’s economy. But what does this mean for the common man?
As news broke about PSX’s historic milestone, many took to social media to ask how it would affect them. Karim Panjani, equities and treasury fund manager, said the stock market rally may cheer investors, but it paints a promising picture for the economy.
He said that for a common man, the performance of PSX gives confidence that the economy is heading in the right direction. “People will have more disposable income, and their purchasing power is likely to increase. That’s what the market is pointing to.” For retail investors or passive investors, who invest through mutual funds, a boom in the stock market will lead to higher returns on investment.
“Rising markets attract many new investors to the market,” said Shankar Talreja, director of research at Topline Securities. “This boom, led by economic stability, will certainly bring more investors into the market, further diversifying the exchange’s investor base.”
A financial analyst based in the Middle East, who spoke on condition of anonymity, said the fast returns are attractive to retail investors. “Developing countries generally have a low rate of retail investors, and when it comes to market participation by individuals, Pakistan probably ranks lower than its neighbors.”
He explained that most people in Pakistan generally prefer to park their money in savings accounts or real estate. However, the stock market has less liquidity problems, allowing investors to withdraw their investments easily. A bullish stock market will move that money from bank accounts or real estate back into the stock exchange.
Karim added that earlier investments were mostly in low-risk treasury bills and savings accounts due to high yields. “That path has now disappeared. Profits have fallen to an average of 8-10 per cent.
Mohammad Sohail, CEO of Topline Securities said that Pakistan Stock Exchange (PSX) has given a spectacular return of 150% from 40,000 to 100,000 in just 17 months. He said that the new IMF loan along with fiscal and monetary discipline has significantly boosted investor sentiment. Additionally, a faster-than-expected decline in inflation and interest rates has injected considerable liquidity into the stock market, fueling this unprecedented rally.
According to Sohail, over the past 25 years, the market has shown resilience and has given impressive returns of 20 percent per annum in PKR and 13 percent per annum in USD.
Karim agreed. He stressed that the ‘return of the dollar’ was “important as the depreciation of the rupee has eroded our wealth rapidly”.
But the challenge remains for small investors as they often fail to capture the bull market’s offerings. Macroeconomist Amar Habib Khan said, “Bulls don’t really mean much to the common Pakistani. By the time they can tap into the equity markets, it will be too late. However, if economic policies that promote sustainable growth Given, continuing, equity markets will continue to provide above-average returns relative to their long-term returns.”
Another equity and fund manager, who spoke to The News on condition of anonymity, said, “An average Pakistani can benefit by investing through mutual funds. So much for active investing. It will require knowledge and specialized skills, which take years to achieve. It is better to keep your money with knowledgeable mutual fund managers.
He added, “When a country is emerging from an economic downturn, even if things are not very satisfactory, then sustainability begins. Monetary easing, disinflation, a narrow current account deficit or a positive Things like current account, reserve rebuilding, and overhauling all point to a stable economic outlook for SOEs.
According to Muhammad Sohail, the PSX has come a long way from less than 1,000 points in the late 1990s to 100,000 today — an incredible 100-fold increase in 25 years that included periods of volatility, including bull runs. Bear Markets, Optimism, and Pessimism.
Despite this growth, the market is undervalued, trading at a price-to-earnings (P/E) ratio of 5x, compared to its historical average of 7x.
Some experts have also sounded the alarm. A Karachi-based financial expert who works at a private bank, however, sees the growth as a bubble, caused by few investment options in the country. “I believe that as a few economic indicators have improved, this has resulted in positive sentiment in the market. However, I also feel that there is a lot of liquidity in the market.
He added [the bubble] will explode soon. “For a retail investor who has made a fortune. [on the back of the bullish activity]it’s a good time to sell and quit,” he advised.
“Political and economic stability has driven a significant rally in the KSE-100 index, which has returned an impressive 150 percent in the past 18 months,” said Muhammad Owais Ashraf, director of research at AKD Securities.
He said the IMF program has enabled the government to stabilize the external accounts, which has reduced the inflation rate from 38 percent to 7.2 percent. The improvement allowed the State Bank of Pakistan (SBP) to cut the policy rate by 700 basis points (bps) this year while also boosting foreign exchange reserves.
The KSE-100 index closed up 814 points, or 0.82 percent, at a high of 100,083, Topline Securities analyst Naveed Nadeem said. “The market maintained its bullish momentum, reaching an intraday high of 100,540. Cars’ confidence was boosted,” he said. Major contributors to the index’s rise were PPL, HBL, OGDC, LUCK, and TRG, which added a total of 629 points to the index.
Trading activity remained strong, with a total volume of 1,164 million shares and a turnover of Rs 39 billion. BOP dominated the volume charts, with 179 million shares changing hands during the session.
“Strong investor confidence on the back of improving macroeconomic fundamentals and lower fixed income yields is likely to sustain the bullish momentum in the equity market,” said Mubasher Anees Naviwala, chief economist at JS Global.
Despite the overall strength of the market, some banking sector stocks acted as a notable drag on the index. United Bank Ltd (-3.52 percent), MCB Bank (-4.14 percent), and HBL (-6.46 percent) declined, adding to the day’s enthusiasm.
The rally has moved the market’s support level to 98,000 points, and analysts are now waiting to see how far the index can go above the historic 100k level in the coming sessions.
Market participants remain optimistic as the index momentum reflects positive sentiment among investors due to stable economic environment and improved liquidity situation.