Pakistan Stock Market: May Review and Outlook

During May’16 the benchmark of Pakistan stock market, PSX-100 Index continued its upward trajectory breaking its all-time high and crossing 36,000 resistance level. This happened almost after a year as the market closed at 36,062, up a healthy 1,343 points from 34,719 at end April’16. Volumes also picked up the pace during the month as average daily volume rose to 272 million shares as compared to an average daily volume of 235 million a month ago.

The month started with persistent upward trajectory, gaining points on daily basis, crossing 36,000 mark in the first few days; breaking its all-time high of 36,205 touched in August last year, with 37,000 barrier in sight and setting a new all-time high of 36,723. Market remained range bound during the middle on account of investors remaining on sidelines and pre-budget jitters. However, Index lost its momentum in the last few days of the month on account of political noise and anticipation of tax-laden budget to be announced during first week of June’16.

Going forward, analysts believe that future Index direction would depend on the upcoming budget. PML-N led government wants to improve power sector liquidity situation by resolving circular debt issue and reducing subsidy on power tariff, which bodes well for power generation and oil marketing companies.

Any attempt to increase capital gains tax (CGT) on equity income would have negative impact on the market. However, in medium to long-term, investors are likely to focus more on economic improvement which would come from large infrastructure projects of China-Pakistan Economic Corridor (CPEC).

The incumbent government has also expressed intentions to increase allocation for public sector development projects that will provide impetus to cement and banking sectors, which are under pressure after recent surprise interest rate cut announced by the central bank.

Analysts also anticipate higher inflow of funds in equities market amid speculation of announcement of likely inclusion of Pakistan in MSCI’s Emerging Markets. Investors have a preference for better dividend yielding companies belonging to power and fertilizer sectors, whereas cement and power sectors are forecast to outperform the benchmark index.

Breaking 10-month long selling spree foreigners were net buyers during the month under review, purchasing equities worth US$3.62 million. Sector-wise, key recipients were Oil & Gas (net inflow of US$13.5 million), Cements (net inflow of US$6.5 million) and Fertilizers (net inflow of US$3.1 million) while Commercial Banks registered a net outflow of US$6.6 million.


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