PakStox Outlook

A few days ago, someone asked me about the consistent rise of the stock market despite the obvious political, economic, and public finance issues, as well as the high interest rate and high exchange rate, which have led to demand destruction across the board. Additionally, we have a political system where it is easy to topple the center, but hard to maintain control afterward. The political gridlock ensures that things stand still and decay instead of creating an environment of political dialogue where the needed structural changes could be addressed. How is it that in an environment like this, foreign investors are pouring money into Pakistan and the market has risen to record highs while local investors are net sellers? My short answer is: money on one side and arguments on both. Leaving aside the fact that foreign investors haven't really poured in a significant amount, having made net purchases of just $150 million in the last year while still being net sellers of over $1.5 bil...

A high policy rate is not solely about getting inflation back to a certain level, and the solution does not lie solely with the central bank. The high level of inflation that we face, reflects issues with our public finances rather than external factors. International commodity prices have been declining for the past year, yet we have not seen a corresponding decrease in domestic inflation. Even if international oil prices fall to a level that provides relief from inflation and external obligations, it will not address the structural issues that have driven interest rates to their current level. In fact, during the 1990s, when oil prices were at record lows, we were still experiencing severe balance of payments issues.   Furthermore, our inflation isn't solely due to "supply chain constraints" – a buzzword for presentations and policy notes, alongside other terms such as "measured approach" and "V-shaped recovery." Limited by current economic jargon, t...

There's a certain hint of optimism that the Monetary Policy Committee might reduce the policy rate at its upcoming meeting on June 10th.  However, such hopes have been dashed before, as in April's meeting, when the State Bank of Pakistan kept the rate at a record high of 22% for the seventh consecutive time. It has been almost a year now since we reached this level, with rates first being raised in June last year. Several factors are rekindling hopes for a rate cut: a slight decline in the Karachi Interbank Offered Rate (KIBOR), T-bills rates, recent reductions in petrol prices, a slower pace of price increases, and a current account surplus. But it's crucial to recognize that a reduction based solely on a few positive indicators might be shortsighted. It could create the false impression that the real underlying causes of our high rates have been addressed. So far, I haven't observed any structural changes in the data flow indicating that the rates should come down.  C...

Pakistan is among the highest recipients of IMF loans. However, it is important to note that Pakistan's IMF debt as a percentage of its GDP is the lowest among comparable countries. The top three recipients all have larger economies than Pakistan and a debt-to-GDP ratio of more than 3%, whereas Pakistan's ratio is less than 2%. Debt-to-GDP ratio is a measure used to assess a country's ability to pay back its debt relative to the size of its economy. A lower ratio generally indicates that a country is managing its debt more effectively compared to its economic output. For a broader meaningful comparison, it is essential to exclude Argentina and Ukraine, as they are special cases due to their unique economic and political circumstances. Additionally, smaller African countries should be left out of the comparison because their economic contexts differ significantly. ( IMF data ) This leaves Egypt as the most relevant country for comparison. Egypt, like Pakistan, has a geopolit...

Less than $150 million of net buying by 'foreign corporates' since the middle of last year has pushed the KSE100 Index to a record high, rising around 70% and breaching the 75,000 level. Though the valuations are still attractive, consider the fact that if this modest inflow has pushed the market this high, imagine where the market would be if even half of the $1.5 billion outflow since 2018 returned to the PSX. Note that within the five-year period from 2018 to the end of 2022, foreigners withdrew $1.5 billion from the Pakistani market. This highlights the shallowness and limited size of the Pakistani market. Local fund managers face a challenging environment, grappling with foreign capital flows on the one hand and the realities of Pakistan's political and economic situation on the other. In the months before foreigners entered the PSX, specifically before the middle of last year, the market touched absurdly low levels due to foreign outflows and high interest rates, with...

For the 3rd quarter ending March 2024, NETSOL reported a profit after tax of Rs. 64.3 million, compared to a profit after tax of Rs. 1,403 million over the same quarter last year, registering a massive decrease of 95.4%. The earnings per share came out at Rs. 0.73 for the quarter. NETSOL did not announce any cash dividends along with the results announcement. On a 9-month basis, NETSOL's profit after tax was Rs. 869.9 million, compared to a profit after tax of Rs. 1,432.5 million in the same period last year. Registering a decline of 39%. The gross profit margin in this quarter was 44%, compared to 33% in the same quarter last year. The tax rate in this quarter was 36%, compared to 4% in the same quarter last year. Revenue of NETSOL for the quarter  increased by 8.1%, gross profit increased by 42.2%, and financial charges increased by 64.7% compared to the same quarter last year.  The significant decrease in net income for this quarter compared to last year, despite an incre...

For the first quarte ending March 2024, Fauji Fertilizer Bin Qasim Limited (FFBL) reported a profit after tax of Rs. 4,306 million, compared to a loss after tax of Rs. 5,429 over the same quarter last year. The earnings per share came out at Rs. 3.33 for the quarter. FFBL did not announce any cash dividends along with the results announcement. The gross profit margin in this quarter was 19%, compared to 7% in the same quarter last year. And the tax rate for the quarter was 47%. Revenue of FFBL, in this quarter, increased almost one and a half times, gross profit increased by over three times, and financial charges halved, compared to same quarter last year. This turned a loss of Rs. 5.4 billion last year to a PAT of 4.3 billion this quarter. In the same quarter last year, FFBL recorded a significant exchange loss of over Rs. 4.6 billion, whereas this quarter saw a negligible amount in comparison. Furthermore, FFBL's other income for this quarter exceeded Rs. 4 billion, a stark cont...