The KSE-100 index closed FY21 with a positive return, posting a striking PKR-based jump of 38% (USD-based 47%). As a result, the benchmark index closed at 47,356 points, marking the highest ever June-end closing level. At the same time, the market returns (+38%) is highest after FY14 (+41%).

To recall, the market sentiment was tested several times during the year, including political unrest witnessed amid alliance of opposition parties under the banner of Pakistan Democratic Movement in the lead up to the Senate Elections (Mar’21) and re-emergence of COVID waves II (Oct’20) and III (Feb’21). Albeit, economic revival remained a key theme throughout FY21, aiding the bullish climate at the index.

Key highlights of the outgoing year include:

• A significant cut in the benchmark policy rate (by 625bps to 7%) at the beginning of the year, and lower yields on fixed income instruments rendered equities as the preferred asset class this year.
• Notable improvement was witnessed in macros; support from global lenders, launch of the Roshan Digital Account (RDA) and robust remittances growth aided the influx of FX reserves, whereas global lockdowns and the ensuing reduction in trade deficit (current account surplus of USD 153mn in 11MFY21), further supported an appreciation in the Pak Rupee against the Greenback.
• The government and State Bank of Pakistan provided stimulus to the construction sector in the form of amnesty, which spurred a rally at the bourse in cyclicals. Strong corporate profitability trends were also witnessed which aided the bullish spree. Revival in economic growth, healthy offtake, stable pricing power, and low borrowing rates translated into robust earnings jump in cement, steel and automobile sectors during 9MFY21.
• Meanwhile other key measures undertaken to improve economic activity and promote investment included reduction in mark-up on Long Term Financing Facility (from 6% to 5%) and Temporary Economic Refinance Facility (from 7% to 5%), while the State Bank of Pakistan asked all commercial banks to allocate five percent of their portfolio to the construction sector.
• Pakistan also resumed the USD 6bn EFF with the IMF, after reaching an agreement on reforms during Feb’21.
• Apart from the aforementioned, two major issues were addressed head-on this year: Judgment of the honorable Supreme Court provided a roadmap for corporates to pay GIDC installments, whereas negotiation with Independent Power Producers (IPPs) was conducted to curtail returns and gradually resolve the circular debt issue.
• On the COVID-19 front, Pakistan fared better than other regional economies as the government’s successful implementation of a micro-lockdown strategy to target areas / cities with a high infection ratio, helped flatten the corona curve without disrupting domestic industries. While the swift commencement of vaccination drive since Feb’21 has further allayed concerns of investors.
• Albeit, foreign outflow from equities during the year settled at USD 387mn, highest after FY17 (USD 652mn).

Courtesy – AHL Research