PSX dip a buying opportunity? Revival expected after US midterms

Pakistan Stock Exchange witnessed a negative close on Tuesday as geopolitical jitters over a potential US-Iran conflict weighed on investor sentiment, but analysts say the current bloodbath is a classic value hunting opportunity before the market, most possibly reclaims its historic highs after the US midterm elections in November.

The benchmark KSE-100 Index closed down by 825 points at 169,600 points. The index touched an intra-day high of 170,944 points and a low of 169,538 points. During the day, trades worth Rs 20.81 billion were recorded with 568 million shares changing hands. Out of 569 companies, share prices of 305 declined while 154 advanced.

Market performance and geopolitical pressure

Market closed flat to negative for the year so far, down nearly 4%, however it achieved its last major milestone on January 26th when the KSE-100 crossed the 191,000 points watermark for the first time in history. Since then, escalating US-Iran tensions, rising US bond yields and foreign outflows from emerging markets have kept the market under pressure. Financial analyst Sheheryar Butt told Daily Times, the prevailing geopolitical situation is expected to be prolonged, possibly till the US mid-term elections. The advice doing the rounds is “Buy when there is blood on the street” – indicating that the current dip should be used for accumulation rather than panic selling.

“Once US-Iran tensions de-escalate, PSX is primed to hit a new historic high above 191,000, led by strong corporate earnings.” He added. Sheheryar said, in the current volatile scenario, investors should use dip as a buying opportunity rather than panicking, with banking sector as the top pick due to outstanding Q4 and Q1 results, record profitability and high dividend yields, while ‘Blue Chips’ with strong balance sheets are recommended as safe havens. “IT sector looks attractive for the long term as exports are rising again with government incentives, auto sector is gaining momentum after a Rs 350 billion surge in car financing in a single month along with entry of new players and expected relief measures.” He articulated.

Sector outlook and macroeconomic indicators

He said cement sector is reviving on the back of 6% sales growth and strong dispatch numbers, as well as pharma sector is set to remain profitable due to inelastic demand and expected increase in medicine prices.

On the macroeconomic front, he said the IMF team is currently in Pakistan for review talks. State Bank of Pakistan’s reserves stand at $21.4 billion. Inflation is currently at 11.1%, but expected to increase due to international oil prices linked to the Iran situation. In this scenario, the State Bank would find it difficult to maintain the policy rate and a hike cannot be ruled out.

Global cues and investment strategy

Global cues are also weak. The Indian market is down nearly 15% this year. Rising US bond yields over 5 percent are pulling money out of emerging markets back into the US. Safe havens like gold, silver and even Bitcoin have been corrected. In the US market, airline and oil company stocks have fallen, but the overall market is up 12 to 15 percent with technology and AI stocks providing significant support. For emerging markets such as Pakistan, the key risk is the direction of U.S. interest rates and Treasury yields. A further tightening in U.S. monetary policy could increase the pressure on emerging-market currencies, capital flows and equity valuations. For now, the strategy for investors is to avoid leveraged positions, accumulate blue-chips and banks on dips, and wait for a clear signal on US-Iran de-escalation which analysts say will be the trigger for PSX to break 191,000 and move towards a new all-time high.