Pakistan Stock Exchange's (PSX) benchmark KSE-100 index experienced an extraordinary surge in 2024, recording an 85% increase in Pakistani rupee (PKR) terms and an 87% rise in US dollar (USD) terms.
This remarkable performance was driven by a combination of favourable macroeconomic factors, including declining inflation, a stable currency and aggressive monetary easing by the State Bank of Pakistan (SBP). However, as we progress into 2025, the KSE-100 index appears to be showing signs of exhaustion, with the market becoming range bound for the last three months and lacking clear directional momentum.
To understand the current dynamics of the market and what lies ahead, it is essential to analyse the performance and contributions of various key sectors.
In 2024, the banking sector remained a cornerstone of the KSE-100 index, contributing significantly to its upward trajectory. Although the sector's earnings remained flat on a year-on-year basis at Rs156 billion, it accounted for 39% of the total index profitability in the first quarter of fiscal year 2024-25 (1QFY25).
Despite a decline in interest rates, banks maintained robust earnings, supported by improved asset quality and increased lending activities.
The oil and gas exploration sector faced challenges in 2024, with profitability declining 21% year-on-year in 1QFY25. This downturn was primarily due to fluctuating global oil prices and operational challenges. With focus on reduction in circular debt under the IMF umbrella, the cash flow for this sector should improve going forward.
Oil and gas marketing companies experienced an 86% year-on-year decline in profitability during 1QFY25. The significant drop was due to inventory losses stemming from volatile oil prices and regulatory challenges affecting pricing mechanisms.
The cement industry experienced a 14% year-on-year increase in earnings, amounting to Rs35 billion in 1QFY25. This growth was driven by higher retention prices and a reduction in coal costs, despite a decrease in local demand.
Market leaders in both North and South regions of the country have benefited from these favourable conditions, contributing positively to the index. The government's recent incentive to stimulate the real estate sector should provide impetus for further growth.
The fertiliser sector saw a 16% year-on-year increase in profitability, reaching Rs56 billion in 1QFY25. This was largely due to higher urea and di-ammonium phosphate (DAP) prices, which offset the decline in sales volume. The evergreen dividend players in the sector will be favoured to generate the yield in the falling interest rate environment.
The food and personal care sector faced a 15% year-on-year decline in earnings in 1QFY25. The decrease can be attributed to rising input costs and competitive market conditions, which squeezed profit margins for many companies. Also, the erosion in the earnings of middle and lower class will impact the profitability in this sector.
The pharmaceutical industry emerged as a top performer in 2024, with its market capitalisation increasing 198%. This surge was driven by improved financial results following a decline in raw material prices, currency stabilisation, lower inflation and the deregulation of non-essential drugs.
Companies like GlaxoSmithKline Pakistan saw their market capitalisation rise 385%, reporting a profit of Rs3.6 billion in the first nine months of 2024, compared to a loss of Rs392 million in the same period in 2023.
The textile sector faced headwinds, with profitability declining 60% year-on-year in 1QFY25. Challenges included rising production costs, energy shortages and increased competition in international markets, which collectively impacted the sector's performance.
The technology sector does not have major weightage in the index currently but it is gaining momentum with the listing of new companies. The sector reported a loss of Rs1.4 billion in 1QFY25, primarily led by losses of Pakistan Telecommunication Company Limited (PTCL).
Despite the overall sectoral loss, individual companies like Air Link Communication experienced significant gains, with a 268% increase in share price in 2024 due to improved mobile sales and the anticipated launch of locally assembled TVs and laptops. The exceptional performance of the KSE-100 index so far can be attributed to several macroeconomic and sector-specific factors. The State Bank implemented aggressive monetary easing, reducing the policy rate by 900 basis points, which lowered borrowing costs and stimulated economic activity.
Despite a constant political overhang, a decline in inflation, IMF programme and stable Pakistani rupee enhanced investor confidence, attracting both local and foreign investment. However, all these news have already been incorporated into the recent index performance and it seems that investors are clearly looking for new triggers for the next leg of outperformance.
The writer is a financial market enthusiast and is attached to Pakistan's stocks, commodities and emerging technology
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ