KARACHI: After a disappointing 2021, one of Pakistan's prominent brokerage houses expects the KSE-100 to make history next year.

In a meeting with journalists on Friday, Arif Habib Limited (AHL) unveiled its 'Pakistan Investment Strategy Report 2022', saying that it expects the stock market's benchmark KSE-100 Index to hit 55,000 in 2022.

The KSE-100 has endured a volatile year, offering less than a 1% return (till close on Friday, December 24). While it touched its intra-year high of 48,726 in mid-June, it has since seen a tumultuous journey with inflationary readings, widening current account deficit, and higher interest rates taking toll on investor sentiment.

Additionally, Pakistan was also moved back from the emerging to the frontier markets index in November by Morgan Stanley Capital International (MSCI).

However, the brokerage house in its report, which it labelled 'a delicate balance', said the KSE-100 is expected to generate a total return of 25% during 2022.

It is worth mentioning that the KSE-100 last traded above 50,000 in June 2017. During the same year, it also hit its historic high of 52,876.46 in May 2017.

“Our index target is based on target price mapping, justified P/E multiples and earnings growth," stated the report. "Our forward P/E for CY22 comes out to 4.9x, which is lower than last 10-Yr P/E of 8.3x, while earnings growth is expected to clock in at 12.4%."

The report added that key sectors i.e. E&Ps, commercial banks, cements, textiles, steel, and OMCs, would lead the earnings growth chart.

"Proactive measures undertaken by the incumbent government and the State Bank of Pakistan (SBP) to avoid another boom and bust cycle and ensure economic growth remains sustainable in upcoming years should keep demand cushioned."

On the political front, AHL said it does not see any political upheaval at the domestic level, and expects the incumbent government to complete its tenure by 2023.

However, “inflationary pressure on the economy is a more prominent threat to the popularity of the government".

On the geopolitical front, the report expects an improvement in Pakistan’s relations with the US in the coming year.

“Pakistan is expected to play an important role with regard to the Afghanistan issue,” said Tahir Abbas, Head of Research at AHL.

Coming to economic indicators, AHL projected GDP growth at 5.17% during FY22 against 3.94% achieved last year.

Sana Tawfik, economist at AHL, said GDP growth will be holistic, with agriculture sector projected to grow at 4.5%, industry sector at 6.6% and services sector at 4.9%.

The report added that the quantum of Current Account Deficit (CAD) is likely to come down provided correction in global commodity prices coupled with measures to restrict discretionary imports.

November: Pakistan's current account deficit widens further to $1.91bn

Meanwhile, no significant depreciation of the currency on the cards, said the report, which expected exchange parity at Rs 183 against US Dollar by December 2022, “as REER is hovering under its historic average, expected reduction in quantum of imports, robust inflows through remittances to continue alongside improved export outlook.”

Against USD: Pakistan's rupee remains largely stable

Furthermore, inflation is expected to return to single digits from 2HCY22 owing to high base of last year, currency stabilization, monetary easing and slowdown in global commodity prices.

Pakistan's headline inflation rises to 11.5% in November, highest in 21 months