Profit taking drags the PSX index down to 77,887 points in July 2024

• The market witnessed a mixed sentiment during Jul’24.

• At the beginning of a new fiscal year, the market showcased a bullish trend, given that Pakistan reached a staff-level agreement with the IMF for a new 37-month Extended Fund Facility amounting to USD 7 bn.

• As a result, the index reached an all-time high of 81,839 points.

• The inflation during Jun’24 stood at 12.6% compared to 29.4% in Jun’23.

• Moreover, the SBP announced a rate cut of 100bps, to 19.5% during Jul’24.

• The current account deficit narrowed by 79% to USD 0.7bn in FY24 (lowest in the last 13 years).

• In addition, the LSMI output grew 7% YoY in May’24. However, investors remained cautious amid political noise, resulting in profit-taking.

• The SBP’s exchange reserves declined by USD 362mn MoM to USD 9.0bn.

• Furthermore, PKR depreciated against the USD by PKR 0.4 | -0.14% to arrive at 278.74.

• The market closed at 77,887 points, shedding 558points | -0.7% MoM.

Major News

Petroleum product sales dropped to an 18-year low since FY06, Fertilizer sales fell 21% in June 2024, Cement dispatches declined by 12 in June, Rice exports hit a historic high of USD 3.88bn in FY24, Passenger car sales surged 138pc in June, down 16pc in FY24SNGPL manages to push UFG losses down from 8.98% to 5.15% over the last four years, UBL to sell 55pc stake in UNBL UK to Bestway Group, Pakistan Oilfields made a significant hydrocarbon discovery in Jhandial-3, Sapphire signs pact to buy power firms, Engro Corp’s business restructuring gains CCP approval, Govt plans to pull out of fuel pricing process, giving OMCs free hand, Power Generation down by 1.9% YoY during Jun’24, and FY24 cell phone imports up 233% to USD1.89bn YoY.

Economic developments

Pakistan posted a current account deficit of USD 681mn in FY24 compared to a deficit of USD 3.3bn in FY23. This marks the lowest deficit in last 13 years. The decline in FY24 is driven by a reduction in trade deficit and increased remittances. Total exports in FY24 stood at USD 38.9bn, marking a substantial 10% YoY growth. On the other hand, total imports amounted to USD 63.3bn, up by 3% YoY. In Jun’24, Pakistan posted a current account deficit of USD 329mn compared to a deficit of USD 248mn during May’24. Total exports in Jun’24 recorded at USD 3.1bn, marking a 17% decrease from USD 3.7bn in May’24. Additionally, compared to Jun’23, there was a 14% increase in exports. Moreover, total imports for Jun’24 reached USD 5.7bn, reflecting a 4% decline from the May’24 figure of USD 5.9bn. When compared to Jun’23, imports showed a 45% increase.
Remittances from overseas Pakistanis witnessed a decline of 3% MoM, reaching USD 3.16bn in Jun’24 compared to USD 3.24bn in May’24. On a YoY basis, remittances increased by 44% (Jun’23: USD 2.2bn). In FY24, remittances experienced an increase of 11% YoY, amounting to USD 30.3bn, as compared to USD 27.3bn in FY23. In Jun’24, remittance inflows from Saudi Arabia amounted to USD 809mn, showing a 57% YoY increase and a 1% MoM decrease. Remittances from the UAE stood at USD 654mn in Jun’24, depicting a 101% YoY and 2% MoM decline. The UK contributed USD 487mn in remittances during Jun’24, experiencing a 42% YoY and 3% MoM increase. Remittances from the EU countries totalled USD 322mn in Jun’24. Net foreign direct investment (inflow) settled at USD 169mn in Jun’24, compared USD 122mn during Jun’23. During FY24, net FDI inflow was up by 17% YoY to USD 1.9bn compared to USD 1.6bn in FY23. During FY24, China emerged as the leading contributor to net FDI, recording a net FDI of USD 568mn. In terms of sectors, the power sector attracted the most significant investment during FY24, totalling USD 800mn.
In May’24, the Pakistan Bureau of Statistics reported a 7.3% YoY increase (23-month high) in the production levels of Large Scale Manufacturing Industries (LSMI) compared to last year. The LSMI Index increased to 113.9 in May’24, up by 7.3% from 106.1 in May’23.

Outlook & Recommendation

In the upcoming month, the IMF Executive Board’s approval and the disbursement of the first tranche of the new EFF will be the key highlight, which will which bring in more foreign inflows. Furthermore, the ongoing result season (4QFY24/2QCY24) is expected to garner investors’ interest, keeping certain scrips in the limelight.

We expect headline inflation to be 10.5% in July ’24, representing a significant decline from the 12.6% YoY inflation rate reported in June ’24. While headline inflation shows a significant YoY decline, monthly pressures remain due to higher food prices and the impact of budgetary measures. On the other hand, geopolitical instability in the Middle East could drive oil prices higher, posing a risk to the short-term inflation outlook.

The KSE-100 is currently trading at a PER of 4.1x (2025) as compared to its 5-year average of 5.9x while also offering a dividend yield of ~10.1% as compared to its 5-year average of ~8.1%. Our preferred stocks are OGDC, PPL, MCB, UBL, MEBL, LUCK, FCCL, DGKC, MLCF, FFC, PSO, HUBC, ILP, NML and, INDU.

Courtesy – AHL Research