The market expects a cut in interest rates in the final quarter of the fiscal year.

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Week remained bullish with the benchmark index breaking its previous closing highs and exceeding the 67k level. Overall, the first four trading days cumulatively added around 2k pts, with the index closing at 67,005pts (up 1,853pts/2.84% WoW) on Friday, following a slight profit-taking session noted on the last day of the week. Positivity loomed over the successful last review of IMF’s SBA, the new incumbent government’s steps and commitment towards reforms. Furthermore, a new tax regime was ordered for retailers and wholesalers, piloted initially in major cities, aimed to broaden the tax base. While similar taxation measures have failed previously, if successful this time, they could set the stepping stone for tax base broadening. Additionally, with FTSE Russell retaining Pakistan in the secondary emerging market for the next six months, further optimism was advanced. Moreover, the inflation outlook also presented a positive stance, with Mar’24 CPI expected at 20.6%YoY, turning current real interest rates into positive territory after 38 months. Lastly, GDP growth for 2QFY24 stood at 1.0%YoY, supported by a 5% annual growth in the agriculture sector, while being dragged down by a 0.8%YoY contraction in industrial activity. However, on the political front, reconstituting economic councils/committees, with the exclusion of the finance minister from heading CCI and previously from ECC (which eventually reverted), could confuse investors and cause some delays in set reforms. Furthermore, smuggling, on the rise again as indicated by OCAC and PALSP, could hurt certain sectors.

Overall, market participation improved WoW with daily traded volume averaging at 330.7mn sh compared to 323.5mn sh in the previous week, up 2.2%WoW. Other major news flows during the week included; 1) Tax collection gap stands at whopping Rs5.8tr in Pakistan, 2) Govt borrows 181.3bn debt in a week, 3) M2 rises by Rs149.4bn in a week, 4) Foreign investors: Jul-Feb profit repatriation soars 237pc to $759.2m YoY and 5) Weekly SPI down 0.1pc. Sector-wise, Transport, Woollen, and Tobacco were amongst the top performers, up 16.8%/10.0%/6.8%WoW respectively. On the other hand, Jute, Leasing co., and Textile weaving were amongst the worst performers with a decline of 4.0%/3.7%/2.3%WoW. Flow wise, major net selling was recorded by Companies with a net sell of US$7.6mn. On the other hand, Insurance absorbed most of the selling with a net buy of US$9.0mn. Company-wise, top performers during the week were, i) PTC (up 24.7%WoW), ii) KTML (up 17.9%WoW), iii) SCBPL (up 12.8%WoW), iv) FFBL (up 12.0%WoW), and v) THALL (up 10.3%WoW), while top laggards were, i) SHEL (down 5.0%WoW), ii) PGLC (down 4.9%WoW), iii) PIBTL (down 3.9%WoW), iv) ASL (down 3.8%WoW), v) FCEPL (down 3.3%WoW).


With the inflation outlook on an easing trend, assuming risks such as additional taxation and increases in international prices don’t come into play, policy rate story could again come into focus. Whereas, we expect the first rate cut in the final quarter of the current fiscal year. With the market despite being at its highest levels, the forward P/E of the market remains at 3.5x, which instills positivity regarding fundamentals. In the near term, we expect the market to experience momentum in previously lagged sectors, led by cement and chemicals.

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