The Pakistan Stock Exchange (PSX) emerged as the best performing equity market in the world during fiscal year 2023-24 after its benchmark KSE-100 Index closed the final session at 78,444.96 on Friday, compared to 41,452.69 in the previous fiscal.

The benchmark KSE-100 index posted an annual return of 89% during FY24 in PKR terms while in USD terms, the return was 94%, as the local currency (PKR) appreciated against the US dollar.

This helped PSX become the best performing index in the world, with Turkey and Romania emerging as the second and third best with 48.2% and 42.7% return in USD terms, respectively, stated brokerage house Arif Habib Limited (AHL) in its report.

“The majority increase in return is attributed to re-rating of Price to Earning (PE) from 2.2-2.4x in June 30, 2023 to 3.94x in Jun 28, 2024,” said Topline Securities in a a separate report.

It attributed the PE multiple re-rating to “improving economic indicators, i.e. increase in exports and remittances by 11% and 9%, respectively in 11MFY24, decline in inflation from peak of 38.0% in May-23 to 11.8% in May 2024.”

A successful initiation and completion of the International Monetary Fund (IMF) Stand-by Agreement, a smooth conduct of general election 2024 and smooth transition of government, and timely initiation of talks with IMF for new programme were stated as reasons.

During fiscal year 2024, Pakistan’s real GDP grew by 2.38%, as compared to a negative growth 0.21% in FY23. Moreover, forex reserves held by the State Bank of Pakistan (SBP) increased by $4.4 billion, arriving at $8.9 billion as of June 21, 2024.

Following the IMF deal inked in June last year, which helped Pakistan unlock inflows from bilateral and multilateral lender, the country’s sovereign rating was upgraded by Fitch from CCC- to CCC while Pakistan’s weight in the MSCI FM index increased from ~0.6% to ~2.7%, which helped captivate interest of foreign buyers at the domestic bourse.

“Foreign buying activity of $141 million was reported in the FY24,” said Arif Habib Limited (AHL).

“The inflows were predominantly in banks ($60mn), other sectors ($36mn), fertiliser ($18mn), power ($16mn), and cement ($13mn). Whereas, net selling was observed in debt ($17mn),” it added.

On the domestic front, reports of the government planning to release Rs1,250 billion for the energy sector to reduce circular debt further fuelled the rally at the index, said AHL.

“Moreover, the government’s commitment to speed up the privatization process also contributed to the positive momentum,” it added.

Scrip-wise positive returns during FY24 were witnessed in SCBPL, SRVI, BAHL, MEBL and FFBL posting returns of 293%, 268%, 234%, 219%, and 213%, respectively. Meanwhile, negative performance during the year came from TRG, LOTCHEM, GADT, UPFL, and RMPL, each posting negative returns of 33%, 30%, 29%, 19%, and 6%, respectively.

Outlook for FY25

Experts believe the earnings growth momentum is expected to continue which should support the index.

However, for the growth to continue, the inking of a new Extended Fund Facility (EFF) with the IMF will be a key.

After the completion of a nine-month SBA in April, Pakistan is in talks with the Washington-based lender for a new and larger bailout programme.

“An IMF delegation is expected to arrive in Pakistan again for the new EFF programme. So any news emerging during the IMF staff visit will set the direction of the market,” said Topline Securities.

The IMF programme, if successfully secured, is anticipated to boost the market’s momentum, while paving way for foreign inflows from other multilateral and bilateral partners boosting Pakistan’s external position.

Topline Securities believed that due to expected monetary easing, deregulation of nonessential pharmaceutical prices, lower inflation and gradual addressal of recurring circular debt, high leverage, pharma, consumer and circular debt affected companies/sectors will garner investors’ attention in next 12 months.

“However, risk of an unexpected devaluation of PKR against the greenback and rise in the international oil prices could not be ruled out,” said AHL.


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