PakStox Outlook

  Click here to get better view

Last week, the Finance Minister was vocal about the government's endeavors to bring interest rates to single digits. However, such expectations contrast with the reality that no measures have been introduced to alter the public finances structure responsible for the breakdown conditions and near-disaster that kept policy rates elevated at 22% for nearly a year, seriously hampering economic activity.  The Pak Rupee-USD parity stubbornly remains unchanged, and even the voices that once predicted it would fall below 250 have now fallen silent. The black hole of the energy sector remains voracious, with no sign of either power rates coming down or a resolution to the circular debt. The recent sharp decline in policy rates is primarily the result of stepping back from the brink and reducing the associated risk premium. However, government revenues remain stagnant, and harsh taxation measures reflect panic in public finance management. This is not an environment conducive to calming econ...

What has been the main theme of fund management over the past year at PSX, as it rose by more than 80% in terms of KSE100 Index gains; Interest rates declining so go to equities? Given such extraordinary market movements—where PSX experienced extreme lows followed by absurd highs, driven largely by severe external factors—the small size of the market was overwhelmed. In such circumstances, fund managers had little choice but to go with the flow, as the massive shifts were primarily the result of extraneous forces.  But how can an "over-engineered" financial analyst, who must master all sorts of "financial combinations" and endure endless certifications and courses, do anything to outperform gains purely driven by market movements? Or is he merely a cog in the system, executing trades within a portfolio structure and preparing management reports under the old theme of "earning dividend income while rooting for capital gains"? Portfolios within a certain cla...

OGDC has risen by more than 90% this year, yet it still hasn't reached the $1 per share price at which it sold for back in 2019. Some consolation. At its current price, the trailing dividend yield is under 5%, with stagnating production. Even after doubling its price within a year, the PE is just around 5. This highlights the stark mismatch between the replacement cost of capacity and the income stream it generates in the current distorted economic environment. The upheaval we have experienced in recent years has been tremendous. Replacing or expanding the country’s industrial capacity would now cost five to six times more than it did just five years ago. Inflation and the depreciation of the currency have created significant barriers to entry, limiting production increases, thereby stifling both growth and competition. Meanwhile, existing units are struggling to recover gains both for the current year and the years lost - this limiting income from investment. This mismatch between...

Despite investment activity at the Pakistan Stock Exchange now being dominated by institutions rather than individual investors, their presence and influence remain largely absent at the board level of listed companies. In smaller markets, institutions with a longer-term presence often exert significant influence on company boards, particularly regarding dividend policy. Pension funds, which dominate some markets more than mutual funds, typically require a consistent income stream and therefore play a substantial role in shaping a company’s dividend policy. This influence, however, is entirely absent in Pakistan. Aside from large companies in basic industries—which often belong to corporate groups and require dividend streams for other investments or to manage intra-group cash flow—most listed companies continue to build asset bases in both listed and unlisted equities, showing little regard for the interests of small shareholders. In fact, why should any listed corporate entity, prima...

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) reduced the policy rate by 200 basis points to 13%, effective December 17, 2024. This decision reflects easing inflation and improved economic growth prospects while maintaining a balance between inflation stability and sustainable growth. Inflation Headline Inflation declined to 4.9% in November 2024 due to lower food inflation and the fading impact of gas tariff hikes from November 2023. Core Inflation remains sticky at 9.7%, with volatile inflation expectations. Inflation for FY25 is expected to average well below the earlier forecast of 11.5-13.5%, though risks remain (e.g., revenue measures, food inflation, global prices). Economic Growth Growth prospects have improved, with real GDP growth for FY25 projected in the upper half of the 2.5-3.5% range. Industrial and agricultural activity is gaining momentum, supported by better-than-expected cotton arrivals and strong performance in manufacturing sectors like te...

The Monetary Policy Committee (MPC) reduced the policy rate by 250 basis points to 15%, effective November 5, 2024. This decision follows a faster-than-anticipated decline in inflation, aided by lower food inflation, stable oil prices, and no expected adjustments in gas tariffs and Petroleum Development Levy (PDL) rates. This marks the fourth consecutive rate cut since early June this year, after maintaining a steep policy rate of 22% for a year. The Monetary Policy Statement notes that; IMF Program: The new IMF Extended Fund Facility (EFF) approval has improved external inflows and reduced uncertainty. Market Yields and Inflation: Secondary market yields and the Karachi Interbank Offered Rate (KIBOR) have dropped, and October surveys showed improved consumer and business confidence alongside lower inflation expectations. Fiscal Challenges: The government’s tax collection fell short of targets in the first quarter of FY25, though non-tax revenues, boosted by SBP profits, supported fisc...