2021 likely to be year of stabilisation

The new year, starting from January 1, 2021, is strongly expected to be the year of stabilisation for the national economy. Gross domestic product (GDP) is likely to grow in the range of 2-2.5% in the current fiscal year ending June 30, 2021.

The central bank is anticipated to make the first increase in benchmark interest rate in May while it is expected to revise the rate upwards by 100-150 basis points till December 2021.

The rupee is likely to depreciate to Rs172 against the dollar by December 31, 2021, said Topline Research in a report titled “Pakistan Outlook 2021 - Based on Topline Poll”.

Pakistan would also resume the International Monetary Fund (IMF) loan programme worth $6 billion by June 2021 that has remained suspended since the Covid-19 outbreak in the country in late February 2020, according to a survey conducted by the research house in the first week of December.

Political landscape, however, will remain as it is - noisy - during the year or at least until Senate elections.

Short-term foreign investors are expected to continue to sell shares at the Pakistan Stock Exchange (PSX) next year.

The research house conducted a poll of more than 50 top fund managers and corporates, asking a range of questions on expectations about the economy and equity market during the upcoming year.

Around 65% of the survey participants were fund managers while the rest belonged to Pakistan’s corporate sector like banks, oil and gas, cement, steel, auto and other companies.

“Around 96% of the survey participants expect no change in the political landscape of the country during 2021 - we expect the same, where we anticipate political noise to somewhat fizzle out after Senate elections.”

Around 92% of the participants expect Pakistan to re-enter the IMF programme. Out of the total participants, 46% expect the country to re-enter the IMF programme in first quarter (Jan-Mar 2021) while the remaining 46% anticipate it will enter in the second quarter.

“We expect Pakistan to be back in the IMF programme during the first quarter of 2021,” the research house said. Around 57% of the survey participants expect GDP to grow 1.1-2% in FY21 while 32% believe that GDP is likely to increase 2.1-3%.

“We expect GDP growth of 2-2.5% in FY21.” Around 50% of the participants believe the rupee is likely to close between 160 and 165 by December 2021 while 36% expect it to close between 165 and 170.

“We expect the rupee to be around 172 per dollar by December 2021.”

Around 41% of the survey participants believe inflation is likely to average at around 8.5-9% in FY21.

The research house estimated that inflation would fall in the range of 8-8.5% during FY21.

Nearly 89% of the participants expect monetary tightening in 2021 while 51% of the participants anticipated first increase in the policy rate in May 2021. “We expect interest rate to increase in May-July 2021,” it said.

“While 50% of the participants anticipate 75-100 basis points increase in the policy rate - we expect 100-150 basis points rise in the policy rate during 2021.”

PSX to grow despite foreign selling Around 36% of the survey participants believe the KSE-100 index will likely close between 45,000 and 50,000 points by December 2021, while 29% expect the index to close between 50,000 and 55,000 points.

“We estimate the KSE-100 index to reach 52,500 points by the end of December 2021.”

Around 64% of the participants believe that foreign corporate selling is likely to continue in 2021. Out of the total participants, 32% expect net selling to the tune of $100-200 million.

“We believe net foreign corporate selling is likely to fall in the range of $200-300 million in 2021.”

The survey participants expect cement and banking stocks to outperform during 2021, while oil and gas exploration and production (E&P) and automobile sectors are likely to underperform in the upcoming year.

“We expect cement, auto, exploration and production and bank stocks to outperform during the year (at PSX),” it said.