Market Survey: KSE-100 Index to surpass 50,000 pts by Dec’21

July 12, 2021 (MLN): With exhibiting a seven-year high performance by giving a 38% return on investment in shares during FY21, the benchmark KSE-100 index is expected to surpass 50,000 pts by December 2021.

The expectation was based on the survey of major local institutional investors conducted by Intermarket Securities as per which respondents expect the Index to cross 50,000pts by December 2021, while a third of the respondents expect the KSE-100 to cross 55,000pts by June 2022, i.e., 15% returns from the present Index levels, similar to the 10-yr average market return of 14%.

For context, at the start of 2021, most sell-side firms expected the Index to close near 55,000pts by end of 2021. While the Technology and Cement companies are expected to continue their rally, the survey participants have also flagged Banks among the likely outperformers. However, the defensive Energy, Fertilizer, and Pharmaceuticals sectors are expected to remain among the laggards.

On the economic front, Current Account (CA) deterioration is identified as the most important risk factor for the market, where most respondents expect a CA deficit of 2-3% of GDP in FY22, following a potential marginal surplus in FY21.  

In contrast, however, the survey revealed that expectations for PKR depreciation are relatively modest – consensus is for 7% depreciation vs. the US$ to 170 by June 2022. This seemingly indicates that foreign capital inflows are expected to continue supporting BoP.

With regards to inflation, more than half the participants expect the CPI to fall within the SBP’s defined range of 8-9% in FY22 while the policy rate to increase by 100-200bps in the next 12 months. There is little consensus on interest rates, but a sizeable proportion of respondents expects monetary tightening to commence by January 2022, the survey report said.

Meanwhile, it is important to note that potential repercussions of US exit from Afghanistan and rising Covid-19 cases (new variants) as risks for Pakistan did not include in the survey; thus, the expected increase in interest rates can be delayed by a quarter.

For the market movement, the survey indicates that Politics is not a concern, while few worries about the IMF program exist as Only about a quarter of the participants expect that the PTI will not reelect in the next general elections (due in 2023). Moreover, there is a high conviction about the government remaining committed to macro reforms for the remainder of its term. About 90% of the participants expect the IMF program to continue albeit with some delay in reforms.

In the same vein, 80% of the participants expect power tariffs to be increased in FY22, as per IMF conditions. Recall, the next IMF program review has been deferred until September 2021, and clarity on macroeconomic outlook, especially the external account, may not fully emerge until then, the report added.

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Posted on: 2021-07-12T16:57:00+05:00