KSE-100 expected to rocket past 80,000 amid low valuations, rate cuts: Analysts

December 13, 2023 (MLN): The Pakistan stock market’s benchmark index KSE-100 is expected to surge past the 80,000 level by 2024 owing to enticing valuation, improvement in economic conditions, and interest rate cuts, according to strategy reports from various prominent brokerage houses in Pakistan.

The KSE-100’s forward Price to Earning (P/E) is still cheap at less than 4x as against the 10-year average of 7.5x, and US Dollar-based market capitalization of $33.3bn is only a third of the all-time high, Intermarket Securities Limited said in its Pakistan Strategy report.

“Our December 2024 Index target is 85,000pts implying a total return of 40%, inclusive of 11% dividend yield.” It added.

The report noted that Pakistan is addressing the two key areas which have historically hurt the investment case for equities.

The political setup ensures much-needed stability for now, even if it is arguably restrictive for long-term reforms.

Authorities have also begun to push for Foreign Direct Investment (FDI) while turning more appreciative of the need to sustain macroeconomic discipline, after the default scare earlier in the year.

Relatively settled politics and comfort on the economic outlook is turning investor attention to Pakistan’s resilient corporate profitability and cheap valuations.

With interest rates set to come off and no imminent concerns on the PKR, Pakistan presents a strong macro recovery trade that should extend into 2024, potentially turning the ongoing rally into a multiyear bull run, Intermarket Securities said.

The report said that Pakistan equities have the potential to deliver a multiyear bull run. Supportive factors include significant room for valuation rerating, strong corporate profitability, and immense space for institutional money (both domestic and foreign) to rotate into equities.

Furthermore, a strategy report by another prominent brokerage house in Pakistan, Insight Securities, also maintained a bullish outlook for Pakistan’s equity market.

“We believe that earnings growth of ~13 % in CY24 and potential re-rating can push KSE-100 index to ~84,950 by December 2024” it said.

Insight Securities highlighted that the expected cut in interest rates is likely to alter asset allocation from money markets to equities, while reiterating the attractive forward P/E multiple of the index as compared to historical averages.

General elections are scheduled in February 2024 and a swift transition of political setup will remain a key trigger for the market, it added.

On the economic front, the successful completion of the first review of IMF’s SBA provides confidence, however, there are still challenges amid the lack of structural reforms in yesteryears and the country will need another IMF program post completion of this stand-by agreement.

“We opine that the new setup will undertake discussions with IMF regarding a new program.” It noted.

Furthermore, market participants will keep a close eye on structural reforms like the privatization of loss-making SOEs and the materialization of much sought-after investments from GCC.

To note, earlier this month, Arif Habib Limited also released its strategy report, wherein it stated that the KSE-100 index is expected to reach 81,000 by December 2024, fueled by robust earnings growth, enticing valuation, and comparatively steady economic growth.

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