Pakistan’s stock market - a barometer to gauge economic performance - managed to maintain an uptrend, as it closed near a two-year high in 2020 following recovery of a badly riddled economy despite all odds, which included the outbreak of a pandemic and loud domestic political noise.
Pakistan Stock Exchange’s (PSX) benchmark KSE-100 index increased net 7.5% or 3,020 points during the year to close near a two-year high at 43,755 points on Thursday compared to 40,735 points on December 31, 2019.
Securities-led research houses have anticipated the index to surge by 15-20% to 50,500-52,500 points by end of next year - 2021 - which is being projected as a year of expansion in the domestic economy.
During 2020, the index went through a roller-coaster ride on a bumpy road as it slumped 37% to a five-year low of 27,047 points at the end of March compared to 43,000 in January in the wake of the government imposing lockdown to confine the contagious Covid-19.
The recovery (from the all-time low of 2020) was gradual but the index managed to increase by a significant 63% to a two-year high of 43,956 points in December following the government’s decision to keep essential sectors like food, banks and telecommunication open during the nationwide lockdown, open the leading export sector to earn much needed foreign exchange, introduce a relief package worth Rs1.2 trillion ($8 billion) to support businesses and underserved households and launch construction package and amnesty scheme for investors in the sector to revive allied industries. More importantly, the central bank’s aggressive cuts in the benchmark interest rate by a cumulative 625 basis points during March-June to 7% gave strong cues to the market to maintain a growth trend. The cuts in the interest rate massively reduced the cost of borrowing by businesses and made them profitable during the pandemic.
Besides, the supply of subsidised loans to pay salaries during the pandemic, cheaper loans for construction and housing and new and running businesses in export and manufacturing sectors also kept sentiments positive at the stock market during the year.
“Sentiments (at PSX) remain positive despite record $540 million foreign selling. Thanks to strong post-Covid-19 recovery, 12-year high volumes and rally in mid-caps like TRG Pakistan, Unity Foods and cement,” Topline Securities CEO Muhammad Sohail said in a short commentary.
Alpha Beta Core CEO Khurram Schehzad, in a commentary, said, “Pakistan equities hit a multi-year low of 27,000 level in March but rebounded following the opening of national economy from lockdown before several other economies around the globe during 2020.”
“2021 looks promising and street-consensus is of a continued recovery in equity market during the new year. Hope political stability and policy consistency should be able to take roots and keep economy, corporate and businesses on a steady path of growth in 2021 and onwards,” he said.
Experts said the market would maintain the growth momentum in 2021 with economic activities coming back into growth mode and challenging times of Covid-19 fading into history. The introduction of effective vaccines would also help expansion of businesses and economy.
“We have a strong bullish outlook of the stock market. Economic growth, earnings growth and profitability of listed firms and availability of huge liquidity will altogether help the index accelerate in 2021,” Arif Habib Limited (AHL) CEO Shahid Ali Habib said the other day.
“The fiscal year 2021 is the year of economic revival. GDP is estimated to grow by 1.8% during the year (compared to a contraction of 0.4% in the previous year 2020),” said AHL Research Head Tahir Abbas.
Manufacturing and export sectors like textile, cement and steel would lead the anticipated rally from the front with the government’s full focus on increasing exports earnings and accelerating housing and construction activities in the country.
Policymakers are expected to take measures in a way they support economic activities, which had suffered due to Covid-19 pandemic. The economic growth would come from all three major sectors including agriculture, industrial and service sectors, they said.
They hoped that the government would complete its five-year tenure in office, as it faces no meaningful threat from opposition parties. The government would efficiently deal with one opposition party in the lead these days, they added.
The analysts expected a revival of the IMF loan programme worth $6 billion by March 2021, continued strong receipt of workers’ remittances and a manageable current account deficit in FY21; all would help the stock market maintain an uptrend during the year.
However, attracting foreign investors to PSX would remain a big challenge next year as well. “We expect net foreign selling of around $200-300 million at the stock market next year following an improved outlook for the developed stock market (in recent times),” Topline Research Director Syed Atif Zafar said.
Published in The Express Tribune, January 1st, 2021.
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