The KSE100 index has declined by 9,894 points (-8.5%) from its peak of 116,169 (16-Dec-2024) to 106,275. The sharp decline can be attributed to profit-taking combined with redemptions in mutual funds. During the last three trading sessions, mutual funds have sold securities worth PKR 17.6bn, with a net sale of PKR 9.8bn. However, PSX saw some recovery today. 

Individuals remained the largest buyers, with a net buying of PKR 6.1bn, followed by banks and companies with a net buying of PKR 2.1bn and 1.7bn, respectively. 

The KSE100 2025 forward PE ratio of 5.7x is still substantially below the 10-year average P/E of 8.2x. This discount signals a sharp undervaluation of the index, suggesting that the market has 44% room for appreciation to 153k points when it aligns closer to historical valuation multiples.

The market cap-to-GDP ratio is 11.9%, well below the 17.6% average for the last ten years. Normalizing this ratio would imply a 48% upside for the KSE-100 index to 158k points.

We reaffirm that after-tax fixed-income returns for 2025 will remain in single digits, prompting a potential reallocation of funds from fixed-income instruments to equities.

Our estimation suggests that with every 1% reallocation from fixed income to equities, mutual funds and insurance companies could potentially deploy PKR 33.6bn and PKR 14.4bn into the market.

The recent market correction presents a compelling buying opportunity for investors to establish new positions.

Our preferred stocks include PSO, OGDC, PPL, FFC, FCCL, MLCF, DGKC, AKBL, BOP, HUMNL, SYS, and HTL.

Courtesy – AHL Research