Pakistani equity market holds ground on IMF program hopes, positive corporate results

Pakistan’s equity market remained steady in April 2023, thanks to the additional clarity provided on the potential resumption of the International Monetary Fund (IMF) program. According to recent reports, Pakistan shared a revised financing plan with the IMF, which includes assurances of USD 2.0 billion from Saudi Arabia and USD 1.0 billion from the UAE.

Pakistan stock exchange decline 21% in the first quarter of 2023

This positive news supported the momentum of the KSE100 index during the month, and it rose by 3.9% to close at 41,581pts. Investors are hopeful for an imminent revival of the IMF program, and the general window between a successful staff-level agreement (SLA) and IMF executive board’s approval is six weeks, after which a tranche of USD 1.1 billion will be released.

Additionally, Pakistan’s companies announced their results, with a sharp improvement in profitability despite a tough macroeconomic environment.

The E&Ps sector witnessed a 60% YoY increase in profits during 3QFY23, benefiting from the Pak Rupee depreciation.

The profits of the banking industry also increased by 54% during 3QFY23 because of improved NIMs after the unprecedented rise in interest rates.

Even cyclical industries, such as cements, saw their profits rise by 13%, as timely price hikes allowed the sector to offset low demand, surging inflation, and rising debt servicing costs.

However, there was political noise over the upcoming general elections, with all relevant parties appearing at an impasse on the election’s schedule. Recent developments over potential negotiations between the incumbent government and PTI may offer clarity as both parties discuss the most feasible way forward, according to KASB K-Trade.

The improvement in Pakistan’s macroeconomic landscape is apparent, with the country recording a current account surplus of USD 654 million in March 2023, the first time since November 2020.

Moreover, SBP’s foreign reserves rebounded by over 50% to USD 4.5 billion because of controlled external accounts and availability of external financing funds.

However, this improvement stems from the stranglehold on the economy through policies aimed at slowing growth and restricting US Dollar outflows, and several industries have ceased or scaled back operations because of the prevalent import restrictions on essential raw material and machinery.

CPI inflation is projected to peak in May 2023, likely crossing the 40% mark, because of higher energy tariffs, increased taxation, elevated food prices, and the Pak Rupee depreciation.

Onwards, the high-base effect will kick in, but inflation is still projected to remain high for the entirety of FY24, estimated at 26.5%. Given SBP’s medium-term inflation target of 5-7% by the end of FY25, interest rates will likely remain above 20% for the entire fiscal year.

The month welcomed investors with OPEC’s production cuts, as the group announced to cumulatively scale back production levels by 1.2 million bpd. Initially, global oil prices reacted quickly and rebounded by USD 5.0 per barrel.

However, demand concerns neutralized gains brought forth by OPEC’s cuts as crude oil lost nearly 11% from its monthly peak. Additionally, major progress was made in regards to the import of discounted Russian crude oil as Pakistan placed an order for a cargo, which is expected to land in May 2023.

If Russian crude proves feasible for refiners, Pakistan is targeting imports of 0.1mn bpd, and at these levels, the discounted pricing could potentially save USD 350-400mn annually.

Consumer price inflation in Pakistan recorded at 35.37% in March 2023

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