Macro Analysis /

Pakistan Market: KSE-100 – Activity rises to record-high levels in May

  • The KSE-100 made a strong comeback in May 2021 (up 8.2% mom, reversing its CYTD decline to +9.5%)

  • This was supported by lower political noise, noticeable reduction in Covid-19 cases and an expected pro-growth Budget

  • Valuation discount is astonishing, where KSE-100 is trading at a 2022f P/E of 5.9x (34% discount to its mean)

Yusra Beg
Yusra Beg

Senior Investment Analyst

Intermarket Securities
1 June 2021

The KSE-100 made a strong comeback in May 2021 (up 8.2% mom, reversing its CYTD decline to +9.5%). Political noise abated, and noticeable reduction in Covid-19 cases was supplemented by expectations of a pro-growth Budget FY22.

Market activity reported a tremendous rebound with daily traded volumes touching a record high of 2.2bn shares. Average daily traded value rose to c.US$204mn vs. US$173mn in April 2021. FIPI outflow intensified (US$43.4mn) – concentrated largely in E&Ps, because of MSCI rebalancing.

Despite the rebound, the valuation discount is astonishing, where KSE-100 is trading at a 2022f P/E of 5.9x (34% discount to its mean). We remain Overweight on Cements, Banks, Textiles and Tech.

Major events in May 2021

Political noise abates: After protests by TLP, a religious party, died down in April, political noise has palpably diminished. The opposition alliance (PDM) has also lost much of its angst after the exit of one of its largest members, PPP. Meanwhile, Jahangir Tareen group pledged to support the PTI government in the upcoming Budget. All this helped return market focus on the Economy, which continues to show handsome improvement.

Covid-19 positivity ratio falls to single digits: New daily cases declined to below 2,000 by the end of May from a recent peak of c.6,000 cases. The positivity ratio dropped to just c.4% vs. c.11% in April. The c.10 days lockdowns leading up to Eid and other restrictions imposed by the government (curfews in cities with over 15% positivity ratio and shorter business hours) appeared to be bearing fruit. 

Expectations of a pro-growth Federal Budget: Positive news-flow on the upcoming Federal Budget FY22 (due on 11 June) helped bolster investor sentiment. The government may look to increase the fund for drawback of duties and taxes for exporters (extended to textiles, pharmaceutical, 2/3 wheelers, refrigerators, washing machines, and transformers). The government is also set to unveil an agriculture reform package worth PKR110bn to lift farmers’ income. The budget is also expected to be aligned with IMF conditions.

Status quo monetary policy: The SBP maintained the policy rate at 7.0% (unchanged since June 2020) in the May MPS. Although the decision was consistent with SBP’s earlier guidance and market consensus, the KSE-100 rallied c.2% in the following trading session. The MPS complemented the news of provisional GDP growth for FY21 of 3.94% and a target of 4.8% for FY22, compared with -0.4% in FY20. Pakistan maintained a current account surplus in 10MFY21 backed by record levels of remittances and moderate increase in imports. The PKR/USD, however, depreciated 0.6% during May.                 


Future market direction will be governed by the course of Covid-19 outbreak and reigning in the Indian strain (early signs emerging) and the upcoming Budget announcement. Valuations of the KSE-100 has reached new trough levels (2022f P/E of 5.9x) despite continued macroeconomic improvement and near-record corporate profitability. Our top picks include UBL, BAFL, BAHL, SYS, POL, PSO, PSMC, MTL, and GATM.