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KARACHI: Arif Habib Limited (AHL) Friday released its Pakistan Investment Strategy Report for 2022 and reiterated the domestic equity market to be an attractive investment avenue and that it expects the KSE-100 Index to reach 55,000 points by December 2022.

Tahir Abbas, Head of Research, AHL, began the session by providing an overview of the Strategy Report in which AHL states that higher economic growth, policy settings normalization, 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 international commodity prices led to a strong uptick in imports and hence, translated to a higher CAD.

AHL expects the external account to remain under pressure in the near-term, however, recovering in the latter half of CY22. 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.

On the fiscal front, the revenue collection is expected to improve with the government intending to eliminate certain tax exemptions while curtailing current and development expenditures. In addition, AHL shed light on inflation, stating that the headline number is expected to peak in Jan’22 and come down there on, averaging at 10.7% in FY22. With this, policy rate is likely to clock-in at 10% by the end of current fiscal year.

Shahid Ali Habib, CEO, AHL said the outgoing year 2021 proved to be challenging for the market amid political and economic jitters, it is expected the upcoming year to be a promising one. “We believe, clarity on the economic front coupled with cheap market valuations and profitability prospects of the stocks is likely to rejuvenate the investors’ interest”, he said.

He highlighted that given the swings endured by the market in the last six years, the index underwent abroad sell-off worth $2.3 billion from the foreign investors. As a result, foreign ownership as a percentage of free float market capitalization declined significantly to its 10-year low, currently hovering at around $2,038 million. “This number will further come down to $500 million if we exclude the strategic holding. All said, we believe, the recent reclassification to Frontier from Emerging is likely to regain the attention of foreign participants.”

According to AHL Report, earnings growth is expected at 12.4 percent during CY22. The jump in corporate profitability is expected to be broad-based with contribution expected from all sectors including Banks, E&Ps, Cement, Automobile Assemblers, Textiles, Technology and Oil Marketing.

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

The KSE-100 Index is trading at a CY22 P/E of 4.9x – a 38 percent discount to historic average multiple of 8.1x, while trading at a P/B of 0.8x – a 55 percent discount to historic average of 1.7x. Moreover, the index valuations are highly attractive when compared to the region as well: at a 67 percent discount to regional markets against average historic discount of 36 percent.”

At the close of the session it was stated that AHL acknowledges the SECP’s efforts for promoting the development of capital market of the country. “With the initiatives such as direct listing, revamped regulatory framework, Professional Clearing Member initiative and other reforms, we expect capital market to get further boost. Furthermore, the government’s efforts to comply with the KYC-AML requirements laid down by the FATF, we are hopeful for a positive outcome on that front too in CY22.”

Copyright Business Recorder, 2021

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