ISLAMABAD: The Pakistani stock market is doing very well as aggregate after-tax corporate profits falling in the KSE 100 index for the current third quarter of 2021 stand at Rs 258 billion, the highest of Last 10 years.
According to the official presentation of the Securities & Exchange Commission of Pakistan (SECP) made available to The News, the profit for the first 9 months of calendar year (CY) 21 is also the highest in the last 10 years – a 59% year on year growth (YoY) compared to the corresponding period of last year 2020. Fiscal year (FY) 2021 saw the highest profitability growth in the last 10 years at 62% – the next highest figure being 23% in FY14. The average quarterly profit for CY18 to CY20 amounts to Rs163 billion. The first three quarters of CY21 profit amounted to Rs252 billion (increase of 55%).
The companies have paid dividends to the tune of 498 billion rupees for 2021, compared to 271 billion rupees for 2020. production and distribution Rs33,306 billion, automobile Rs26,259 billion and others.
For corporatization, the SECP claims a growth of 247% in the incorporation of companies (69,380 companies from July-18 to December-21 against 19,996 companies from July-15 to June-18). Up to 44% of the total 157,000 businesses were registered in Pakistan between July-18 and December-21. There was a 51% growth in new incorporations during the year 2020-21. Also 98% of companies, which were incorporated online in 2020-21.
There was a 494% growth in companies in the real estate sector, followed by growth of 194% in the IT sector and 136% in the tourism sector from July-18 to December-21, compared to July- 15 to June-18. There was a 318% growth in incorporations in Gilgit-Baltistan, during the same period.
Regarding capital market reforms, the SECP presentation indicated that they had simplified and digitized the IPO process – resulting in 19 IPOs (including 2 GEMs) since July 2018. This resulted in in the amount of 85 billion rupees. The number of active investors at PSX increased by 8.8% in a single year (2020-2021).
The nationalization of the requirements has sparked renewed interest in the REIT (Real Estate Investment Company) segment as 10 new REIT schemes, amounting to Rs146.250 billion and 8 REIT management companies are underway, against only 1 existing REIT scheme (amounting to Rs58 billion).
The Pakistan Stock Exchange (PSX) has recorded record trading volumes in 10 years. Since July 2018, it has seen a 109% and 57% increase in the average daily volume and value of trades, respectively in the loan market.
There was a 129% and 79% increase in the average daily volume and value of trading, respectively, in the futures market. Assets under management increased 57 percent. For access to finance, the SECP said it had launched the Secure Transaction Registry (STR) which has enabled SMEs to obtain loans from financial institutions. As of April 2020, more than 91,000 registered charges and three housing finance company (HFC) licenses have been issued.
The SECP launched the Growth Enterprise Market (GEM) Board which has enabled small businesses to tap into the capital markets to raise funds (2 registrations to date). The first company restructuring company (CRC) approved, for the revival and rehabilitation of entities in difficulty and the first registered guarantee management company (CMC), paving the way for the guarantee and negotiation of contracts to term based on electronic warehouse receipts (eWRs) for agricultural products.
To make doing business easier, he said 12 of the 14 administered legislations have been reviewed and simplified. They introduced much-needed improvements to foster business growth, streamlining and streamlining requirements, leading to renewed interest in capital markets, NBFCs (non-bank financial corporations), insurance, and the corporate sector. They enabled the provisions added to the Companies Act to promote startups, stimulate capital formation and allow innovation (regulatory sandbox), the overhaul of the IPO process to simplify the process of quotation and reduce turnaround times.
They enabled the opening of digital accounts and the integration of non-resident Pakistanis to invest in the capital market through Roshan Digital Accounts (RDA). When the spokesperson for the Minister of Finance, Muzammil Aslam was contacted for his comments on the performance of the stock market over the past three years, he said: “The market has been under pressure from June 2017 until June 2020. However, the market provided a 40% return. in 18 months and outperformed bonds, currencies and other asset classes. The market expects to reach an all-time high over the next 18 months. This is supported by record corporate profitability of $ 930 billion in 2021 and $ 500 billion in split payments, he added.
Fahad Rauf, head of research at Ismail Iqbal Securities, said performance was below average, mainly due to overseas sales. Local investors also preferred fixed income over stocks. The mutual fund industry’s assets under management (AUM) have doubled over the past 2 years, but only 15% of these have been invested in stocks. The lack of market depth (weak investor base) and inconsistent economic policies, boom and bust cycles have shaken investor confidence. There has been some interest in tech stocks, but overall the market has not performed well, he said.
When Tahir Abbas, securities analyst for Arif Habib, was contacted, he said the start of 2021 was exceptional for the equity market, as the index saw a massive jump thanks to the reopening of global economies and a local V-shaped recovery, which has resulted in historically high profitability for listed companies and a slowdown in the rate of Covid-19 infection.
The effective deployment of a vaccine has played a key role in rekindling feelings. On a macroeconomic level, the current account remained in surplus at the start of the year, marked by the strengthening of the pak rupee (153 PKR vs. USD), robust growth of the LSM, rising GDP growth rate, declining of the CPI against a backdrop of low international commodity prices, interest rate unchanged at 7%, surge in exports and falling imports all contributed to the positive momentum. However, this celebration was short-lived as political noise coupled with macroeconomic indicators turning red changed sentiment, he maintained.
In particular, he said the pressure on the external account, rising inflation figures, recurring waves of COVID-19, the delay in approving the IMF’s sixth review and the transition of the emerging market to frontier market put pressure on the stock market. In addition, foreign exchange reserves started to run out, with the pak rupee losing ground against the US dollar. While the State Bank changed its policy, resuming monetary tightening in order to maintain sustainable growth and avoid another boom and bust cycle like those seen before. That said, the index closed at 43,901 points, generating a return of 0.3% (-9.9% USD-based return), he concluded.
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