Pakistan’s Stock market recovery is likely to continue in the year 2024. Experts expect the benchmark KSE-100 total return index to reach 75k by Dec 2024, a potential upside of 31%. Smooth power transfer to the new government after elections, a new long-term funding program from the IMF, and an expected fall in Interest rates will be key drivers of equities in 2024.
Despite the recent rally, the Pakistani market trades at a PE of 3.1x based on 2024 estimated earnings. This is far lower than the last 5-year and 10-year average PE of 6x and 8x, respectively. This is even lower than countries that have defaulted, like Ghana and Sri Lanka.
Our KSE 100 Index target 2024 is based on a targeted forward PE of 3.5x. This is based on the last two years’ average PE when Pakistan FX reserves fell below two months of import cover, affecting PKR and investors’ sentiments.
The major factor that will provide liquidity to stocks is an expected fall in Interest rates. With clear signs of economic stabilization, we expect the SBP policy rate to fall by 7% in 2024 to reach 15% by Dec 2024 compared to 22%.
Elections in February 2024 will provide much-needed political stability. Based on the initial assessment, chances are high that PML-N and its coalition partners will get the highest number of seats in the election.
Pakistan’s external account vulnerabilities can only be addressed effectively through a new and bigger IMF program. We expect that the new government will sign this long-term program with the IMF in 2024. We estimate some stability in PKR, which we expect to average Rs302 in 2024 vs Rs280 in 2023 and may reach Rs324 by Dec 2024.
We like cyclical sectors, including Cement and Steel, due to the expected decline in policy rate and better volumetric sales. We also like Banks due to their unmatched valuation.
Our 2024 Top Picks include Meezan Bank (MEBL), United Bank (UBL), MCB Bank (MCB), Mari Petroleum (MARI), Lucky Cement (LUCK), Maple Leaf Cement (MLCF), Fauji Cement (FCCL), Engro Corporation (ENGRO), Pak Elektron (PAEL), Indus Motors (INDU) and Interloop (ILP). On the other hand, some mid and small caps have the potential to provide above-average gains that, includes Pakistan Aluminium Beverage Cans (PABC), Mughal Iron & Steel (MUGHAL), Image Pakistan (IMAGE), Tariq Glass (TGL), Century Paper & Board (CEPB), Panther Tyre (PTL), and Murree Brewery (MUREB).
Courtesy – Topline Research