Low-interest rate, stable currency boost Pakistan’s corporate sector earnings

Despite a global slowdown created due to the coronavirus pandemic, Pakistan’s corporate earnings showing impressive 38 percent year-on-year growth in profits from October to December.

As per Mohammed Sohail Chief Executive Officer of Topline Security, the significant growth in corporate sector earnings a good indicator to identify the direction of the economy.

“In the last six months the Large Scale Manufacturing (LSM) sector has increased by eight to nine percent which has a direct impact on the companies listed in the stock exchange,” said Sohail, as there is a strong relationship between the LSM sector and the listed companies, “therefore 30 to 35 pc rise in profit indicates that the economy has witnessed a sharp recovery,” he said.

The analyst was of the view that the major reason behind impressive corporate earnings is the low-interest rate offered by the State Bank of Pakistan (SBP). “Alongside currency stability, we also were able to open our economy quite early in the coronavirus pandemic which leads to an increase in demand in the later months of 2020,” said Sohail.

The analyst added that a major chunk of the profits is retained by the companies, which are used for expansion purposes that lead to economic growth and employment creation.

“Secondly, Pakistan offers a high dividend payout as compared to other countries in the region, which means that the shareholders who receive the dividends will utilize their capital in different sectors such as construction that will benefit the local economy,” he said. Sohail informed that the unlisted companies also have witnessed a significant increase in their profits as well.

He further said that due to improvement in the exchange rate the cost of imported goods has declined, which has benefited many companies including the auto sector.

The analyst projected that in the coming days the political scenario and IMF loan will dictate the direction of the capital market.