KSE-100 Index sheds 91 points despite making gains during early trading

Showing again the signs of low investors’ confidence, a latest report says the amount of fresh capital raised on the Pakistan Stock Exchange (PSX) in 2022 dropped to a nine-year low.

The research report compiled by Topline Securities Ltd on Thursday said political and economic instability was reason behind the lack of interest among companies in raising funds through the stock market.

Earlier, the Topline Securities had projected the Pakistan Stock Exchange’s performance in 2023 would remain dull.

In 2022, companies raised Rs1.3 billion in three initial public offerings (IPOs) in 2022. This was in sharp contrast to 2021 in which the amount was Rs20 billion in as many as eight offerings.

Meanwhile, the number of IPOs in 2022 was the lowest since 2019 when only one company went public.

These figures are not a surprise as the poor showing in terms of new listings was in line with the overall stock market performance in the outgoing year. The benchmark index, which reflects the cumulative performance of top 100 shares on the bourse, has dropped 10.59 percent since Jan 1.

Over the same period, market capitalisation or the collective value of the same 100 firms in dollar terms has shrunk by about 30 percent.

Similarly, the volume of shares traded on a daily basis slipped 52 percent from the preceding year to 231 million. The annual decline in terms of the average value of shares traded every day has been 60 percent to Rs7 billion.

Dull 2023

External debt repayment crisis and political noise were the reason cited by the Topline Securities in its report Pakistan Market Outlook 2023, as the the country was going through severe and unprecedented economic challenges.

“Huge external financing gap, worsening global financial markets, and political instability are increasing the risk of timely external debt payments,” it added.

Pakistan’s external debt obligations are in excess of $73 billion for the next three years, as compared to current foreign exchange reserves of $6 to $8 billion.

The report said there was an urgent need for debt restructuring and a bigger International Monetary Fund (IMF) programme in 2023, which would be accompanied by a tough exchange rate with tighter monetary and fiscal measures.

“Inflation is also likely to remain high as we expect average inflation of 26 percent in FY23 and 14 percent in FY24 [2023-24],” it warned.

The brokerage attributed the high inflation estimate with the rupee devaluation, expected adjustment in petrol/diesel prices through petroleum development levy (PDL)/sales tax, and an anticipated increase in gas prices in 202-23.

“Consequently, interest rates are also expected to remain elevated as we expect the policy rate to remain in a range of 15-17 percent in 2023,” the report said.

Political noise was also anticipated to remain elevated during 2023 ahead of general elections scheduled in October 2023.

The report said if crude oil prices fell sharply and the global credit market improved [in the best case scenario], equities might perform better than the above expectations. “Similarly, in our worst case if Pakistan defaults on its debt payments then a fall can be expected in 2023,” it cautioned.

However, the brokerage house was of the view that any major market crisis was unlikely as the risk management of the Pakistan Stock Exchange remained sound and the market was already trading at a low valuation.

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