KARACHI: Pakistan Stock Exchange (PSX) is likely to witness a sharp upswing after the general elections scheduled in the mid of next year; although the equity market has yielded a negative return so far in the outgoing 2017, a brokerage report has said.

Taurus Securities expected exploration and production, independent power producers, textile, technology and banking sectors to remain into limelight due mainly to positive implication of rupee depreciation during the coming year.

“Given that it will be the election year, cyclical sectors including cements, steel, and autos cannot be ignored,” the brokerage said in a white paper ‘Pakistan Investment Strategy 2018’. “Factors in the run up to the elections will cause further jitters in the market. However, we feel that investor confidence will be restored after the new government is formed.”

Banks fell 26 per cent as capital gains from Pakistan investment bond exhausted. “The 26 per cent decline in banks impacted the index the most given the highest weight of the sector in the index,” Taurus Securities said.

But, the banking sector is expected to bounce back and grow by two per cent.

“Steady uptick in inflation owing to soaring import bill due to gradually increasing oil prices, and rupee devaluation are expected to result in a rate hike of up to 25 basis points earliest by 3QCY18, marginally restoring NIMs (net-interest margins) income banks with a higher ADR (advance to deposit ratio) will be immediate beneficiaries,” the brokerage said.

Analyst Umair Naseer at Topline Securities said the equity market fell 20 per cent year-to-date and 28 per cent from its peak seen on May 24.

“Due to this significant fall in equities, banks will recognise impairment charge against equities whose market value is below their cost or carrying value,” Naseer said in a report.

Automobile suffered a loss of 15 per cent during the year due to growing competition from new players.

Taurus Securities said the pass-through impact of rupee depreciation, changes in regulatory structures and impact of entrants would determine the fate of the sector.

Cement sector slumped 49 per cent with concerns of oversupply and planned capacity expansions by the key players.

Currency devaluation

The paper said exploration and production sector provides a safe bet in event of domestic currency devaluation due to their revenues link to the US dollar.

“Key risks to our thesis include plunge in international oil prices, sharp depletion of recoverable reserves, and delay in expected commencement of production,” it added.

Overall net investments of Pakistan’s banking sector surged by 1.8% during the third quarter (Q3) of calendar year 2017 against a decline of 2.5% in the same period last year.

Investment in government securities have remained the prime driver behind investments growth, officials data revealed.

Following the recent trend, banks have continued to invest in short-term Market Treasury Bills (MTBs) and have divested from Pakistan Investment Bonds (PIBs) and Sukuks (Rs11.7 billion) during the thirds quarter of the year, according to Quarterly Performance Review of the Banking Sector issued by the State Bank of Pakistan.

Consequently, the share of MTBs (in total net investments) has increased to 52 per cent in the third quarter of the year compared to 42 per cent in the same period last year while the share of PIBs in total investments has declined to 35.3 per cent, the data revealed.

Meanwhile th Asian Development Bank (ADB) has approved $480 million in three loans to improve various economic sectors of the country’s biggest province Punjab. The Manila-based lender and the government signed two loans totalling $380 million for projects to help improve the country’s urban and transport sectors, an announcement said on Tuesday.

Internews