Investors Celebrate Pakistan's Continuing Economic Recovery

[Riaz Haq]

Pakistan's benchmark KSE-100 index hit an all-time high after the announcement of the $7 billion IMF bailout deal today. Economic indicators such as inflation, exports and remittances are also showing significant improvement as well. Speaking to reporters after the IMF deal,  the Fund Managing Director  Kristalina Georgieva acknowledged progress made by Pakistan. She said  "The economy is on the sound path. Growth is up and inflation is down". The KSE-100 index rose in early trade to a record high of 82,905.73 points, before giving up those gains later in the day to close 0.7% down at 81,657. It still represents an annual gain of nearly 100%. 

Pakistani Stock Market Outperforms Asian Peers. Source: Bloomberg

Pakistan rupee has remained essentially stable at around Rs. 277 to a US dollar over the last year. Inflation has come down from 37% last year to less than 10% this year.  Exports have climbed 10.54% ($2.921 billion) to $30.645 billion during the fiscal year 2023-24 compared to $27.724 billion in the corresponding period of 2022-23. Overseas workers' remittances have surged 44% to $5.94 billion in the first two months (July-August) of the current fiscal year 2024-25, compared to the same period last year.  Current account deficit has declined to $681 million in FY24 from $3.275 billion in FY23. The budget deficit for the 2023–2024 fiscal year has been reduced to 6.8% of GDP from 7.7% in the previous year. 

The stock market gains are driven primarily by the increasing profitability of the firms making up the index, in addition to improvement in macroeconomic indicators. The companies listed on Pakistan’s KSE-100 Index have reported their highest-ever earnings of Rs1.7 trillion in FY24, marking a 25% year-on-year increase from Rs1.3 trillion in FY23. In US dollar terms, profits after tax (PAT) rose 10% to $5.8 billion during the same period, according to data compiled by brokerage firm Topline Securities.  Dividend payouts soared 30% as banking, fertilizer, and cement sectors led growth, according to media reports. 

Pakistan has a long tough road ahead to carry out the reforms promised to the IMF in the latest bailout deal. Renegotiating unsustainable IPP (Independent Power Producers) contracts and carrying out long-delayed  privatization of state-owned enterprises to reduce major drain on the taxpayers will not be easy, Boosting tax collection is not easy either. Offering incentives for savings, investments and exports while reducing budget deficits is a difficult feat. It will take a lot of fortitude, finesse and political will to get the results to improve the economy. Pakistani leaders' biggest challenge is to find a way to grow the economy to create enough jobs for the country's growing working age population. Failure to do so could cause major social unrest in the nuclear-armed country of 240 million people. 

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[Riaz Haq]

Nifty, Sensex: India middle-class jitters amid stock market rout

https://www.bbc.com/news/articles/cz7vlezv05no

Two years ago, on his bank adviser's suggestion, Rajesh Kumar pulled out his savings - fixed deposits included - and shifted to mutual funds, stocks and bonds.

With India's stock market booming, Mr Kumar, a Bihar-based engineer, joined millions investing in publicly traded companies. Six years ago, only one in 14 Indian households channelled their savings into the stock market - now, it's one in five.

But the tide has turned.

For six months, India's markets have slid as foreign investors pulled out, valuations remained high, earnings weakened and global capital shifted to China - wiping out $900bn in investor value since their September peak. While the decline began before US President Donald Trump's tariff announcements, they have now become a bigger drag as more details emerge.

India's benchmark Nifty 50 share index, which tracks the country's top 50 publicly traded companies, is on its longest losing streak in 29 years, declining for five straight months. This is a significant slump in one of the world's fastest-growing markets. Stock brokers are reporting that their activity has dropped by a third.

"For more than six months now, my investments have been in the red. This is the worst experience in the last decade that I have been invested in stock market," Mr Kumar says.

Mr Kumar, 55, now keeps little money in the bank, having shifted most of his savings to the stock market. With his son's 1.8 million-rupee ($20,650; £16,150) private medical college fee due in July, he worries about selling investments at a loss to cover it. "Once the market recovers, I'm thinking of moving some money back to the bank," he says.

His anxieties reflect those of millions of middle-class Indians who have poured into the stock market from cities big and small - part of a financial revolution.

The go-to investment route is Systematic Investment Plans (SIPs), where funds collect fixed monthly contributions. The number of Indians investing through SIPs has soared past 100 million, nearly trebling from 34 million five years ago. Many first-time investors, lured by the promise of high returns, enter with limited risk awareness - often influenced by a wave of social media "finfluencers" on platforms like Instagram and YouTube, a mixed bag of experts and amateurs alike.