Weekly review : Stocks climb to historic highs

Despite being a shortened two-day trading week, the Pakistan Stock Exchange (PSX) scaled a fresh peak above 78,800 points over investor enthusiasm following no increase in taxes on capital gains and dividend incomes and over hopes of striking a new loan agreement with the International Monetary Fund (IMF).

The bourse snapped gains of over 2,100 points during the week as many investors were also encouraged by the Pakistani rupee stability against the US dollar and the increase in foreign exchange reserves, which stayed above $9 billion.

Among other positive news, Pakistan’s current account deficit narrowed sharply in July-May 2023-24 compared to the previous year. However, the Sensitive Price Indicator, which portrays the short-term inflationary trend, rose 0.94% week-on-week and 23.78% year-on-year.

In an encouraging development, Pakistan’s real effective exchange rate (REER) depreciated 3.62% to 100.7 in May 2024. This depreciation indicates improved export competitiveness of the country and a high cost of imports.

Day-by-day movement of the stock market showed that when the PSX reopened on Thursday following a prolonged break due to the weekend and Eid holidays, the KSE-100 index surged nearly 2,100 points to a record high of 78,802.

The rally was triggered by the combined effect of a strong banking sector performance, a positive economic outlook and the Fitch report pointing to the potential of securing a new IMF loan programme.

However, the very next day, the market faced volatility and despite crossing the 80,000-point mark in early trading, the KSE-100 closed flat at 78,810. Investors engaged in heavy profit-booking in overbought stocks, leading to the consolidation of positions.

Consequently, the benchmark KSE-100 index closed at 78,810.49, reflecting a substantial increase of 2,104 points, or 2.74% week-on-week (WoW).

Topline Securities, in its commentary, highlighted that the upward trend at the PSX was supported by the budget announcement for fiscal year 2024-25, where no increase was made in taxes on income from equities, including capital gains and dividends for filers of tax returns.

“This tax stability appears to have bolstered investor sentiment, contributing to the positive performance in the stock market,” it said.

The increase in taxes on other asset classes, coupled with the statement from Fitch Ratings saying that taxation measures enhanced Pakistan’s prospects of securing an IMF deal, also boosted market confidence, Topline said.

Arif Habib Limited (AHL), in its report, observed that it was a week of historic highs when only two trading sessions were held. The market sustained its positive momentum as it surged from 76,707 points to 78,810 points, closing at an all-time high.

Investors remained optimistic amid expectations of a new IMF programme, declining inflation, a favourable interest rate trajectory, and the shift of funds from fixed income to equities, it said. On Friday, the market capitalisation reached a historic level of Rs10.55 trillion, which eclipsed the previous high of Rs10.45 trillion set in May 2017.

Meanwhile, the State Bank of Pakistan’s foreign exchange reserves increased $31 million to $9.1 billion. Pakistani rupee remained stable against the US dollar at 278.5.

Sector-wise positive contribution to the bourse came from commercial banks (1,486 points), power generation and distribution (409 points), fertiliser (151 points), chemical (76 points) and textile (55 points).

On the contrary, the sectors that mainly contributed negatively to the index were cement (89 points), technology and communication (67 points) and oil marketing companies (41 points).

Stock-wise positive contributors were United Bank Limited (403 points), Hubco (397 points), MCB Bank (278 points), Habib Bank Limited (248 points) and Bank AL Habib (193 points).

During the week, foreign investors bought shares worth $0.6 million compared to net selling of $5.8 million in the previous week, AHL added.