KARACHI: Bulls roared back on Wednesday amid growing optimism about an improved economic outlook, lifting the benchmark KSE 100 index to its highest-ever closing above 72,000.

Arif Habib Ltd’s Head of Research Tahir Abbas, talking to Dawn, said the attractive share valuations were fuelling the bull run at the PSX.

“Despite the fact the market rallied 65 per cent in the last nine months since June 2023 to an all-time high above 72,000 on Wednesday, it is still trading at a historic-low price-to-earnings (P/E) ratio of 4.4 compared to the average multiple of 6x in the last five years.

The reason for the low P/E multiple is the significant growth in the profitability of listed companies, whereas their scrip prices have not risen by the same quantum. “Resultantly, the cheapest valuations have attracted huge buying interest, especially from foreign investors, triggering a bull run at the stock market in recent months,” Mr Tahir explained while outrightly rejecting the impression that a bubble was in the making.

He also said the economy is in the stabilisation phase, and the measures taken by both the caretaker and the new governments have broadly steered the economy in the right direction, leading to the restoration of investor confidence.

The successful completion of the short-term $3bn Stand-By Arrangement (SBA), with the disbursement of the last tranche of $1.1bn likely this month, and the beginning of talks with the International Monetary Fund for another larger and longer Extended Fund Facility boosted economic outlook.

Obviously, an improvement in the major economic indicators does not emerge in a single month, but the $613m current account surplus and a sharp deceleration in inflation to 20.7pc in March, which is expected to be below 17pc in the ongoing month, were significant developments that would pave the way for a cut in the interest rate in the coming months. “These also contribute to the robust market momentum,” he remarked.

Predicting the surging momentum to continue, he estimated the market still has the potential to grow by 35 per cent from its current level.

Topline Securities Ltd Chief Executive Muha­mmad Suhail said the index reached another record high, mainly due to institutional buying.

“This surge, propelled by positive shifts in market sentiment in the back drop off anticipation in economic metrics such as foreign exchange reserves and inflation trends, has ignited expectations of forthcoming monetary easing,” Topline Securities Ltd said.

Various sectors, including cement, banking, power, and automobiles, contributed significantly to this ascent, with notable contributions from companies like Lucky Cement, Hub Power, Habib Bank Ltd, Millat Tractors Ltd and Systems Ltd, collectively adding 369 points. Conversely, profit-taking was observed in companies like Meezan Bank Ltd, Pakistan Tobacco Company and Pakistan Services Ltd, resulting in a cumulative loss of 85 points.

Ahsan Mehanti of Arif Habib Corporation said the finance minister’s affirmation that forex reserves will reach $9bn-$10bn by June and strong earnings in the banking sector played a catalyst role in the record close.

As a result, the index an intraday record at 72,414.32, gaining 1,055 points. However, it closed at 72,051.89 points after gaining 692.49 points, or 0.97pc from the preceding session.

Published in Dawn, April 25th, 2024