AHL Projects KSE-100 to Reach 120,000 by December 2025

The stock market in Pakistan has been a topic of significant interest lately, especially with the recent projections made by Arif Habib Limited (AHL). According to their latest strategy report, the KSE-100 Index, which is a key indicator of stock market performance in the country, is expected to reach an impressive 120,010 points by December 2025. This forecast suggests a remarkable return of nearly 27% over the next 13-and-a-half months, indicating a bullish sentiment among investors.

In the past year, the KSE-100 has emerged as the world’s top-performing market, particularly between October 2023 and November 2024. It has shown consistent growth, closing at a record high of 94,763.64 points on November 15, 2024, and even briefly surpassing the 95,000 mark. This surge has been fueled by a stable exchange rate and the support of another bailout from the International Monetary Fund (IMF), allowing investors to concentrate on stock performance and earnings.

AHL's report, titled 'Pakistan Investment Strategy 2025', emphasizes that the current market conditions are ripe for a potential re-rating. The brokerage house attributes this optimism to a combination of declining interest rates, a stable Pakistani Rupee (PKR), and improving macroeconomic fundamentals. The report's theme, 'Conquering new heights', reflects the KSE-100's ability to reach new peaks throughout the year, a trend that AHL believes will continue into 2025.

One of the key points made by AHL is that the KSE-100 is currently trading at a price-to-earnings (P/E) multiple of 5.3, which is significantly lower than the 10-year average of 8.3. This suggests that the index remains undervalued, providing a compelling case for investment. Despite the positive outlook, AHL anticipates a slower growth rate in corporate earnings, projecting a 4.2% increase in 2025, which is the slowest since the pandemic year of 2020.

Moreover, AHL highlights the shift in KSE ownership, noting that 76.4% of free float is now held by high net worth individuals, companies, and brokers. This shift indicates a growing interest in equities, especially as the mutual fund industry has seen significant growth, with assets under management increasing from Rs742 billion in FY20 to nearly Rs3.0 trillion by September 2024.

As the report suggests, the preference for equities is expected to rise, particularly as fixed-income returns are projected to remain in single digits next year. This shift could lead to a substantial reallocation of funds from fixed income to equities, potentially injecting billions into the stock market.

However, AHL also cautions about potential risks that could impact the stock market's performance. These include macroeconomic imbalances during the IMF program, volatility in commodity prices, and ongoing political instability. Such factors could pose challenges to the bullish trend that many investors are hoping for.

While the projections made by AHL present an optimistic view of the KSE-100's future, it is essential for investors to remain vigilant. Understanding the underlying economic conditions and being aware of potential risks will be crucial for making informed investment decisions. As the market evolves, staying updated on these developments will help investors navigate the complexities of the stock market effectively.