KARACHI: It’s good news galore on the trading floor of the stock exchange.

With the International Monetary Fund (IMF) green-lighting a $3 billion bailout for nine months, dollar deposits have also started flowing in from friendly Gulf nations. The ensuing rally on the Pakistan Stock Exchange (PSX) is off the charts.

The total value of shares, known as market capitalisation, has increased by half a trillion rupees or $1.8 billion in the last 10 days to almost $25bn.

The day-on-day gain in the benchmark of representative shares hit a 14-year high in the first post-Eid trading session as investors celebrated the IMF bailout. The index has risen 9.2pc since then, which translates to a 13pc jump in dollar terms.

Occasional dips notwithstanding, the euphoria has largely been incessant. “Pakistan still offers a sub-3x asset. Buy!” exclaimed a research note that JS Global released on Thursday.

In simpler words, the brokerage wants people to buy shares because they’re undervalued going by the price-to-earnings (P/E) multiple, which measures a company’s current share price relative to its per-share earnings.

“There’s still material upside as political and economic uncertainty… has de-rated multiples significantly,” it said, adding that a stagnant market has brought down the P/E multiple to a level that’s at more than 50pc discount from its own historical mean.

AKD Securities advised its clients on Thursday to take a “cautiously optimistic view” going forward, however.

“The Stand-By Arrangement with the IMF has only kicked the can nine months down the road where, for a sustained rally, reforms on the economic front — with a particular focus on taxation, energy and state-owned enterprises — need to be carried out,” it said.

It also forewarned investors that the upcoming results season may serve as a “pit stop to the bullish momentum” owing to the potential retrospective applicability of the super tax.

Speaking to Dawn, Securities Exchange Management Suite CEO Sanie Khan said growth in the equities market cannot be sustainable unless structural changes take place at the institutional level.

“Around half of all companies listed on the PSX are on the defaulters’ counter. More than 90pc of the listed companies violate the spirit of the regulations concerning independent directors on their boards,” he said.

Raining on the parade of brokerages selling optimism, Mr Khan said small investors should keep in mind that the same brokerages were the major sellers of shares on July 3, the session that broke the 14-year record of single-day surge in the benchmark index.

Individuals were the biggest buyers on that day, data released by the National Clearing Company of Pakistan Ltd shows.

Published in Dawn, July 14th, 2023