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Research houses lower stock market growth forecasts



Awan said his research firm saw the index reach 42,000 points in December 2020. PHOTO: FILE

Awan said his research firm saw the index reach 42,000 points in December 2020. PHOTO: FILE

KARACHI: Major brokerages have cut their growth forecasts for the Pakistan Stock Exchange (PSX) KSE 100 equity benchmark from 7,000 to 8,000 points, which will reach 41,000 to 42,000 points by December 2020 .

In December 2019, most research firms had predicted that the index would end in 2020 in a range of 49,000 to 51,000 points, given the stability at that time and the expected return of growth in the national economy.

However, these research houses have now lowered their growth estimates following the coronavirus pandemic, which massively rocked the global economy and the stock markets around the world and Pakistan is no exception.

“It is possible to reduce the growth projection of the PSX from 7,000 to 8,000 points to reach around 41,000 to 42,000 points by the end of December 2020,” said Topline Securities research director Atif Zafar. , during an interview with The Express Tribune.

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“The index growth will be weaker due to the coronavirus pandemic, blockages in many countries, a massive drop in international prices for crude oil and other commodities, and a likely decline 200 basis points by the State Bank of Pakistan in the benchmark “interest rate (including the reduction of 75 basis points earlier this week) by December 2020,” he said. .

Earlier, the brokerage expected the index to reach 49,000 points by the end of the current calendar year.

The KSE-100 has plunged more than 8,000 points, or more than 21%, in the past nine trading sessions to around 30,000 points by Thursday March 19 in response to the economic mess caused by viruses in the world. This decline had wiped out a total of 1,543 billion rupees from market capitalization during the nine sessions in question.

The market however managed to close in positive territory for the first time in the last five sessions on Friday. The index recovered 537.58 points, or 1.78%, and closed at 30,667.41 points.

“The market has bottomed out,” said Samiullah Tariq, research manager at Arif Habib Limited. “The stock market could consolidate around 30,000 points (in the short term),” he said.

However, the research firm has also revised down the level expected for the benchmark for the current year.

“We had predicted that the PSX benchmark would reach 51,000 points by the end of December 2020. Growth could be around 5,000 points lower,” he said.

The international oil industry is one of the sectors most affected by the virus. Reference crude Brent has lost half its value since the beginning of February to around $ 30 a barrel.

“There will only be oil stocks that will have a negative impact on the growth of the KSE-100 index. Otherwise, the price / earnings ratio of almost all the other sectors remained unchanged for the year, “he said. “Oil stocks weigh around 18% in the benchmark.”

Zafar added that bank profits could also slow in the current year due to a likely aggressive cut in the benchmark interest rate to accelerate economic activity in the country.

Earlier this week, the central bank lowered its projection of the country’s real economic growth to 3% against growth of 3.5% estimated before January 2020.

Market surveillance: Bulls regain control as KSE-100 exceeds 500 points

Sharman Securities analyst Aftab Awan said in a detailed report, “We see the index will reach 42,000 by December 2020.

“After adjusting for the recent fall in international energy prices and the higher likelihood of a sharp drop in policy rates in 2020, we have revised our earnings estimates down,” he said.

“Given that oil and banking are the two heaviest sectors in our Sherman universe, we now expect corporate profits to drop 5% in 2020 (non-oil earnings growth 8%) relative to our previous growth estimate of 13% (ex-oil 18%). “

Thus, the sharp erosion in oil prices has a negative impact on earnings per share of oil stocks, while a sharp drop in the interest rate could slightly affect bank profits. However, the profits of leveraged companies, including cement, are expected to improve, he said.

Posted in The Express Tribune, March 21st, 2020.

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