Pakistan's stocks: index showing signs of exhaustion
As per the latest MSCI decision, Pakistan's weight in MSCI Global Standard Indexes has improved to 0.023% compared to 0.016% earlier. PHOTO: FILE
Listen to article
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
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
12 hours ago
- Business Recorder
Budget FY26: PSX proposes to resolve provincial jurisdiction differences over collection of sales tax on services at CCI
The Pakistan Stock Exchange (PSX) has urged the federal and provincial governments to raise the issue of jurisdiction differences among provinces over the collection of sales tax on services at the Council of Common Interest (CCI), anticipating the credible body would amicably device 'a (revenue) sharing formula for each province' to settle the grave matter of concern. The bourse said that provincial sales tax is applicable on services including fund and assets management. 'The wordings of the laws enacted by the Sindh Revenue Board, Punjab Revenue Authority and Khyber Pakhtunkhwa Revenue Authority are overlapping as the law governing Sindh Sales Tax enacted by Sindh Revenue Board states that sales tax is to be provided where business is registered while Punjab Sales Tax on Services Act, 2012 and Khyber Pakhtunkhwa Finance Act 2013 states that the province where taxable services are provided or rendered by the service provider is entitled to levy, charge and collect sales tax on such services. 'We (PSX) request that this issue, being of equal relevance to all the provinces and affecting the entire services sector, may be placed on the agenda of the Council of Common Interests so that a sharing formula for each province can be devised to resolve this matter,' the set of budget proposals reads,' the bourse statement said. The three provinces collect sales tax on services at the standard rates in the range of 15-16% of the value of the services rendered. But in the case of the telecommunication services, some provinces charge the tax at the rate of 19.5%. The management of the stock market highlighted the issue in its set of budget proposals for FY26 already sent to the Ministry of Finance, as the dispute over collection of the sales tax on services is 'affecting the entire services sector' including the firms listed at PSX. The stock market facilitated trade in shares of around 550 companies having a total market capitalisation of Rs14.73 trillion (around $52 billion, or 12.7% of Pakistan's gross domestic product (GDP) of FY25), it was learnt. Elimination of minimum tax recommended PSX further requested that 'minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statutes'. It elaborated that the minimum tax on listed companies discourages documentation of the economy. Listed firms already meet extensive regulatory requirements, including audits, tax filings, advance tax payments, and withholding statements, ensuring their accounts align with statutory norms and build trust with authorities. 'However, the levy of minimum tax puts a downward impact on the earnings of listed companies despite having current and brought forward losses.' PSX also proposed enhancing tax credit for listed small and medium enterprises (SME), as they contribute immensely to Pakistan's employment, exports and GDP growth, and provide 80% of all employment in the country. 'In order to encourage small and medium enterprises to get listed on the SME Board, it is proposed that the rate of tax for such listed SME companies be permanently lowered by giving tax credit of 50% of tax payable for 3 to 4 years of listing and then onwards 20% of the tax payable,' it proposed. Besides, it requested to align rates of capital gains tax (CGT) on disposal/sale of securities with rates of CGT on sale of immovable property, align rates of CGT for all derivatives and future contracts traded on PSX with future commodity contracts traded on Pakistan Mercantile Exchange (PMEX), document real estate sector and promote Real Estate Investment Trusts (REITs), and proposed tax relief for foreign investment flows at PSX. To encourage more companies to get listed at PSX, it urged the government to expedite digitisation of the payment system and documentation of the economy through deploying the technology, as 'estimates of the cash-based economy range from 35% to 50% of GDP'.
Business Recorder
a day ago
- Business Recorder
US, China set for trade talks in London on Monday
WASHINGTON: Three of US President Donald Trump's top aides will meet with their Chinese counterparts in London on Monday for talks aimed at resolving a trade dispute between the world's two largest economies that has kept global markets on edge. US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer will represent the United States in the talks, Trump announced in a post on his Truth Social platform without providing further details. China's foreign ministry said on Saturday that vice premier He Lifeng will be in the United Kingdom between June 8 and June 13, adding that the first meeting of the China-US economic and trade consultation mechanism would be held during this visit. 'The meeting should go very well,' Trump wrote. Trump spoke to Chinese President Xi Jinping on Thursday in a rare leader-to-leader call amid weeks of brewing trade tensions and a dispute over critical minerals. Trump says fresh US-China trade talks in London next week Trump and Xi agreed to visit one another and asked their staffs to hold talks in the meantime. Both countries are under pressure to relieve tensions, with the global economy under pressure over Chinese control over the rare earth mineral exports of which it is the dominant producer and investors more broadly anxious about Trump's wider effort to impose tariffs on goods from most US trading partners. China, meanwhile, has seen its own supply of key US imports like chip-design software and nuclear plant parts curtailed. The countries struck a 90-day deal on May 12 in Geneva to roll back some of the triple-digit, tit-for-tat tariffs they had placed on each other since Trump returned to the presidency in January. That preliminary deal sparked a global relief rally in stock markets, and US indexes that had been in or near bear market levels have recouped the lion's share of their losses. The S&P 500 stock index, which at its lowest point in early April was down nearly 18% after Trump unveiled his sweeping 'Liberation Day' tariffs on goods from across the globe, is now only about 2% below its record high from mid-February. The final third of that rally followed the US-China truce struck in Geneva. Trump has repeatedly threatened an array of punitive measures on trading partners, only to revoke some of them at the last minute. The on-again, off-again approach has baffled world leaders and spooked business executives. China sees mineral exports as a source of leverage. Halting those exports could put domestic political pressure on the Republican US president if economic growth sags because companies cannot make mineral-powered products. In recent years, US officials have identified China as its top geopolitical rival and the only country in the world able to challenge the United States economically and militarily.
Express Tribune
2 days ago
- Express Tribune
US fund commits $10m to Pakistani startups
Listen to article A US tech fund has committed $10 million to two Pakistani IT entrepreneurs and IT experts have praised this move as it looks promising for the future. Tech analyst and expert Muhammad Yasir said that Pakistani IT firms are penetrating different traditional and non-traditional markets with their innovative products and services, which is a positive sign. Attracting investments from US-based companies will not only boost business growth and expansion of Pakistani IT companies but it will also improve the image of the country in the relevant sector, opening doors for other companies in high-end markets such as the US and EU. Pakistani IT companies need to reach more similar investors and venture capitalists in major traditional markets like the US, EU and non-traditional markets like the UAE and Saudi Arabia to expedite the overall growth of Pakistani IT exports and expansion. JR Dallas Tech Fund, the premier private investment arm of JR Dallas Wealth Management, announced a groundbreaking $10 million commitment to globally recognised technology leaders Mehwish Salman Ali and Malik Mudassir to spearhead an exclusive US-focused startup investment initiative. Under this landmark agreement, Mehwish Salman Ali and Malik Mudassir will receive $10 million in dedicated capital to identify, evaluate, and invest in high-potential startups planning to scale operations in the US. The duo will serve as lead investment partners with full authority to deploy capital across artificial intelligence, cloud computing, digital health, and frontier technology ventures. "We are entrusting $10 million to two of the most visionary technology leaders of our generation," said Jehangir A Raja, Managing Partner at JR Dallas Tech Fund. "Mehwish and Malik represent the perfect combination of technical expertise, entrepreneurial success, and strategic vision needed to identify the next generation of game-changing startups ready to conquer the American market." This $10 million commitment specifically targets startups with proven capabilities seeking to establish or expand operations within the US, creating a direct pathway for international innovation to contribute to American economic growth. The investment is likely to generate positive economic impacts as these companies are expected to generate 300-500 high-skilled technology positions within 24 months. Portfolio companies are projected to contribute $50-100 million in US economic activity within three years and accelerate breakthrough technologies in AI, healthcare, and cloud infrastructure. Mehwish Salman Ali brings unparalleled expertise as Founder & CEO of Data Vault, Pakistan's first solar-powered and quantum-encrypted AI data centre, Co-Founder of Zahanat AI, the country's first indigenous GPT model, and COO of AppsGenii Technologies. Malik Mudassir commands respect as Founder & CEO of AppsGenii Technologies, operating across the US, UK, and Pakistan, and Co-Founder of multiple successful ventures including GharPar, BoxesGen, and Dental Connect. The $10 million fund operates under a rigorous investment framework designed to maximise both financial returns and economic impact: "Receiving this $10 million commitment from JR Dallas Tech Fund represents more than capital; it's a mandate to bridge the gap between global innovation and American market opportunity," said Mehwish Salman Ali. "We are committed to identifying startups that not only promise exceptional returns but also contribute meaningfully to US technological leadership." Malik Mudassir added, "This $10 million investment enables us to support visionary entrepreneurs who understand that scaling in America requires more than great technology it demands deep market insight, operational excellence, and strategic partnership. We're here to provide all three."
