PSX rises to global prominence in FY2023-24

The Pakistan Stock Exchange (PSX) reclaimed the title of the world’s best-performing market in the outgoing fiscal year 2023-24, with a remarkable cumulative increase of 89% (or 94% in US dollar terms). The market closed at an all-time high of 78,445 points on Friday.

The market made history multiple times throughout the year, achieving record gains primarily in June 2024. Market capitalisation, or the total value of all shares, hit a record high of over Rs10 trillion.

The robust rally began with the International Monetary Fund (IMF) awarding a $3 billion loan programme in late June 2023. This was bolstered by successful reviews of the domestic economy by the IMF. Subsequently, the receipt of loan tranches totalling $3 billion during the year, along with the unlocking of new funds, including $3 billion from other multilateral and bilateral creditors, boosted foreign exchange reserves and kept investor morale high throughout the year.

Additionally, the much-awaited parliamentary elections in February 2024 and the return of stability in the rupee-dollar parity encouraged foreign investors to stage a comeback at the national bourse. This contributed to the market’s consistent highs, while no changes in the capital gains tax (CGT) regime (contrary to speculations of rate hikes) supported the market’s historic gains of over 3,000 points in a single day following the presentation of the 2024-25 budget this month.

In absolute terms, the PSX benchmark KSE 100-Index surged by 36,992 points in the year, closing at 78,445 points in FY24. Muhammad Sohail, CEO of Topline Securities, noted, “These are the highest annual gains in the last two decades.” Based on Bloomberg data, the Pakistan market is the best-performing market in the last 12 months.

The recovery in stock prices was accompanied by a significant improvement in trading activity, with average traded volumes in the cash and ready market increasing by 230% in the year to an average of 503 million shares a day. The average traded value jumped by 337% in the year to Rs20 billion a day.

The average volumes in the futures market also increased by 116% year-on-year to 160 million shares a day. The average traded value of the same increased by 168% to Rs7 billion a day. Foreign portfolio investors made net purchases of over $150 million after a gap of 10 years, thanks to restored investor confidence in the market and an increase in Pakistan’s weight in the MSCI Frontier Markets Index to over 4%.

Sohail noted that the market witnessed five initial public offerings (IPOs) in FY24 compared to only one in FY23. Additionally, the government raised billions of rupees through Sukuk auctions at PSX for the first time in Pakistan this year. Foreign investors bought T-bills worth over $300 million in FY24 (11 months data) compared to selling $41 million in FY23.

The market saw a strong rally amid continued positive momentum attributed to the successful completion of the IMF Stand-by Agreement (SBA), timely initiation of a new IMF facility, 29-month low inflation reading in May 2024, all-time high monthly remittances in May 2024, resumption of foreign inflows in domestic treasury bills, better-than-expected FY25 budgetary measures, a 150 basis point decline in the policy rate after four years, and stability in the currency amid strong dollar inflows.

Outlook

Topline Research projected the other day that the benchmark index would reach 106,000 points in one year, offering a return of 35% in FY25. Shahid Ali Habib, CEO of Arif Habib Limited, said that following a policy rate cut and the unveiling of the federal budget FY25, market participants will closely monitor developments regarding the IMF’s EFF programme, which is anticipated to boost the market’s momentum.

Additionally, it is expected that after successfully securing the IMF programme, Pakistan would be able to unlock foreign inflows from other multilateral and bilateral partners, boosting the country’s foreign exchange reserves and alleviating pressure on the external front.