KSE-100 expected to hit 81,000 by Dec 2024: Arif Habib Limited

December 05, 2023 (MLN): Fueled by robust earnings growth, enticing valuation, and comparatively steady economic growth, KSE-100 index is expected to reach 81,000 by December 2024, according to a report by brokerage house Arif Habib Limited (AHL).

With the current index at around 62,700, this will yield an attractive total return of 31% in 2024.

The optimistic outlook for FY24 is supported by improved economic conditions, with GDP growth expected at 3.3%, a current account deficit of -1.1% of GDP, a downward trajectory in inflation, the start of monetary easing cycle, administrative steps, and improved external flows to stabilize PKR.

“Even with a notable 45% return during CY23TD, the KSE-100 index remains significantly undervalued across various valuation perspectives,” the report added.

AHL highlighted that the KSE-100 index is trading at 4.2x P/E, which is a 29% discount to the last 5-year average of 5.9x.

Moreover, it is trading at a market cap to GDP of 8.8%, a discount of 26% compared to the last 5-year average.

Similarly, the Bond Equity Earnings Yield ratio (BEER) also depicts a discount of 12% as the current BEER is 0.63 as compared to the historic level of 0.70 during the last 5 years.

Moreover, AHL’s report said that foreign investors have transitioned to net buyers in the KSE-100 after an extensive selling spree since CY15, which is expected to sustain into 2024 amid an IMF program on top of extremely attractive valuations and outperformance with the world's major markets.

“We project a foreign capital inflow of $200-300mn in 2024, with potential for the actual amount to exceed this range.” AHL added.

Potential impediments

The report noted that it is important to acknowledge key downside risks to the estimates.

These include the vulnerability of the PKR to global and local macro and geopolitical developments, the looming threat of a global macro slowdown, the resurgence of international commodity prices, political instability, and extremely aggressive structural reforms which could hurt growth in the short to medium term.

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