Stock market’s impressive rally is backed by strong performance data

KARACHI: The Pakistan Stock Exchange (PSX) has crossed 100,000 points psychological limit for the first time in the history of the index. Market analysts are of the view that this performance comes on the back of strong performance data, and is likely to be stable.

PSX has registered a 25-year compound annual growth rate (CAGR) of 19.1 per cent, with an increase in P/E ratio from 2.6x to 5.5x.

The benchmark KSE-100 index opened at 99,269.25 points – a mark achieved by the market after nearly 4,700 points recovery on Wednesday, the highest growth ever registered in a single day. On Thursday morning, minutes into trading, the PSX grew 1,063.65 points to hover around 100,332.90 points around half past 9 AM.

First time ever, stock market breaches 100,000 points

The market was bullish and the index was green across the main board, showing an overall improvement in the investor confidence. The stock market has been showing steady increase for the past several weeks, owing to the overall improving economic indicators.

This remarkable 150 per cent improvement in the index in merely 17 months is reflective of the impact that the economic recovery and fiscal discipline have had on the investor sentiment. With inflation and interest rates rapidly declining, the liquidity in the economy has increased, which is an added incentive for the rally in the bourse.

However, it is crucial to remain cautious while celebrating this historic rally of the KSE-100 index. According to market analysts, Pakistan’s market is still trading at a historically low P/E ratio of 5x compared to its 7x average. This suggests potential undervaluation.

Moreover, the growth can truly be considered beneficial only if it is sustainable. The track record of the past 25 years of 20 per cent annual returns shows that the market is sustainable. But it still needs strong economic backing to resist risks and jerks.

Just like we saw on Tuesday, when the index registered the largest fall in a single day of over 3,500 points after the political heat picked up speed.

Now, the index has achieved another milestone by breaching the six-digit figure. Earlier in November, analysts predicted that the PSX will rise as high as 120,000-127,000 points during the calendar year 2025.

PSX closes with nearly 4,700 points gain

Going forward, growth trend is likely to continue as market participation increases, and ongoing reforms begin to take effect on the investment climate in the country.

Afroz Merchant, from Merchant (Investment) Ltd., spoke to HUM News English and said that the Pakistan’s stock market needs investors who are interested in dividends and still have the holding capacity of at least 10 years. “Ideally investors should have the holding capacity of 25 years, and the patience to go through with it. If the market is high today but comes down to 80,000 points tomorrow, then the short-term investors would not benefit,” he said, adding, “for a long-term stability and growth of the stock market, Pakistani investors need to be educated on the companies that pay dividends and steer the investment towards long-term holdings”.