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KARACHI: The KSE-100 Index registered a 1.9 percent gain in PKR terms and 6.4 percent in USD terms in the first quarter of 2021 compared to MSCI EM and MSCI FM gains of 2.2 percent and 0.2 percent, respectively.

However, the KSE-100 Index has lost 1,374 points or 3.0 percent in March 2021. The KSE-100 Index has increased by 29.3 percent during the first nine months of current fiscal year.

The MSCI Pakistan index recorded a decline of 6.8 percent during this quarter, where its deviation from KSE-100 index is due to differences in composition of the index.

As per data, Mongolia (up 80 percent) and Lebanon (up 32 percent) were the best performing markets during the quarter, whereas Turkey (down 22 percent) and Colombia (down 15 percent) were the worst performing markets. These are total returns in USD terms.

It takes the KSE-100 Index’s recovery from its low on March 25, 2020 to 64 percent, given early opening of COVID-19 related lockdowns, Syed Atif Zafar, Director Research and Chief Economist at Topline Securities said.

Economic activities have seen an almost complete resumption from July/August-2020 however recent surge in COVID-19 cases (third wave) has marginally increased selective lockdowns in the country. That said, the KSE-100 Index remains 16 percent down in PKR terms and 42 percent below in USD terms from its peak on May 24, 2017, he added.

The uptick in equity prices over the last 6 months or so has been fueled by increase in liquidity because of government and the Central Bank’s efforts to stimulate economy during COVID-19, Atif Zafar said.

“It has resulted in greater participation by the retail segment, resulting in overall increase in turnover at the bourse. During the first quarter of 2021 average traded volumes increased by 164 percent on year-on-year basis and 41 percent on quarter-on-quarter basis to 558 million shares/day (highest quarterly volumes since 2005) and average traded value improved by

188 percent on YoY and 54 percent on QoQ to Rs 24 billion/day.”

Individuals were again key buyers with net buying of $75 million, while Foreign Corporates and Insurance were top sellers with net selling of $39 million and $31 million, respectively.

Key sectors that outperformed during the quarter were Textile Spinning, Refinery and Technology, while Paper & Board and Cable & Electrical underperformed the market.

It is expected market direction to be determined by multitude of factors in the second quarter of 2021:

Inflation readings and Monetary Policy: CPI inflation is likely to average between 11.0-11.5 percent during the second quarter of 2021, and as a result all eyes will again be on the Central Bank which will meet in May to discuss the next two months’ monetary policy. Recall, the Central Bank had added the word ‘broadly’ in its forward guidance, where it expects monetary policy settings to remain broadly unchanged in the near-term.

The third wave of COVID-19: Pakistan successfully dodged the second wave of COVID-19, however cases have started to rise substantially over the last week which has resulted in an increase in selective lockdowns in the country. The containment of this rise will be pivotal, along with administration of COVID-19 vaccines during the next three months.

Political Noise: While the political noise has fizzled down, the Pakistan Democratic Movement (PDM) has vowed to take out a long march against the government after the EID festival. The two major opposition parties (PNL-N and PPPP) have seen some disagreements, however there remains a case for them to agree on No Confidence moves on the Senate Chairman and the Punjab’s Chief Minister.

Budget FY22: The recent news flows following Pakistan’s re-entry into IMF program suggests the upcoming budget announcement could potentially be heavy on taxes and possibly also look to cut down on expenditures.

Disbursements to IPPs: The government has failed to disburse the amount agreed in the master agreements with the IPPs as they seek nod from the National Accountability Bureau (NAB). They have another 70 days from March 29, 2021 (without tariff discounts) to make payment, or the IPPs could potentially back out of the agreements.

“The valuations of Pakistan market remains attractive with market 2021F P/E of 5.7x with corporate earnings likely to grow by 16 percent on YoY in 2021F,” Atif Zafar said.

Excluding stated-owned companies, market P/E stands at 6.3x with earnings likely to grow by 22 percent, he said adding that the market continues to trade over 55 percent discount to MSCI EM (Asia) compared to its historical average discount of 43 percent.

Copyright Business Recorder, 2021


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