After witnessing hefty return of 49% and 27%, each in calendar year 2013 and 2014, the benchmark KSE-100 index has maintained its upward trajectory in 2015 as well with 7MCY15 return clocking in at 11%, up considerably compared to most regional peers. The Pakistani market during the calendar year has heavily outperformed both the MSCI Frontier & Emerging market index' which havein fact fallen by 8% and 6%, respectively. What is more impressive is the fact that despite a drop in market capitalization of index heavy weight Oil & Gas and Banking sector, the smaller sectors such as Chemicals, Cements & Autos have boosted the benchmark index.
Volumes and value traded of KSE-100 index have also soared in CY15TD by 23% and 38%, respectively compared CY14. Continued robust performance this year is attributable to improving macroeconomic condition in the country whereby monthly inflation has fallen to 1.8% in July 2015, and the discount rate of 7% is similarly at a multi decade low. Stability on the political side is also being witnessed as the key opposition party PTI has accepted the Judicial Commission report with focus now on electoral reforms process. Federal Government and the Armed Forces are also on the same page over the planned course of action against militants with Operation Zarb-e-Azb in its final stages. Most of the corporate companies continue to show robust double digit growth barring Oil & Gas that have been negatively impacted by the steep decline in oil prices.
The government was able to successfully kick start the dormant privatization program after a hiatus of seven years in 2014 with privatization of residual shares of UBL. In 2015, government has raised the bar with privatization of Habib Bank Limited, which was the largest ever equity offering in Asian Frontier Markets. Fawaz Valiaani, Chief Executive of Elixir Securities Pakistan (Private) Limited says "We are most honored to have been part of the three Banks' privatisation since last year under the initiative taken by the current government. We continue to see the capital markets playing an instrumental part in the economic growth. In the terms of new IPOs as well, we are witnessing augmented activity as more and more private companies are making their way towards the bourses."
Participant's wise activity shows that Mutual Funds have bought a net USD153mn worth of stock, while Banks/DFI's have sold stocks worth USD115mn during the 7MCY15. Although Foreigners as per NCCPL data have remained net sellers during 7MCY15, Faisal Bilwani, Head of Equities (Foreign Desk) feels that this is not a cause of concern since bulk of this outflow occurred earlier in the year, when a key foreign participant liquidated due to factors not related to Pakistan market. He added "we are seeing more and more new foreign funds showing interest primarily on improved macros, political stability and the potential upside on offer. With MSCI upgrade from Frontier Market to Emerging Market also on the cards, we see continued interest and a more diverse holding by foreign players as foreign investors take notice of unusual values in sectors such as Pharma and technology & communication while traditional sectors that include Oil &Gas, Cements and Financials etc maintain their charm given strong fundamentals".
Following subpar performance of the economy during FY09-FY13 when average GDP growth clocked in below 3%, the current government, despite facing considerable headwinds, has delivered growth of 4.1% in its first two years in office. With stability now achieved, the government is now aiming to kick start the much needed growth phase and is targeting an average 6.3% growth between FY16-18. Fiscal deficit continues to recede with FY15's deficit set to end at an impressive 5%. The government is targeting further consolidation with 4.3% deficit eyed for FY16 and 3.5% under the medium term budgetary framework for FY18. Taha Khan Javed, CFA who is heading Research at Elixir says "The structural reform agenda initiated by the government has improved the investment outlook in the country while successful implementation of IMF program has unlocked the flows from multi-donor agencies. The government has been blessed with low oil prices which has acted as a catalyst in reducing the current account deficit and inflation. With the stage now set for higher economic growth & MSCI upgrade, we project the stock market to also remain buoyant, despite small hiccups."
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