The KSE-100 Index proved to be resilient and came out strong despite the country's economic challenges such as inflation, pressure on external accounts, the implementation of super tax and demand erosion across major sectors. Let’s take a look at the most profitable and the least profitable sector throughout the year. Profitability growth could have been higher without the impact of the super tax.

In a Nutshell

• Top Performing Sectors
• Underperforming Sectors
• Winners and Losers
• FAQs

KSE-100 Index Profitability in 2023

KSE-100 Index reports a 12.7% YoY growth in 3rd quarter of the fiscal year 2023 (3QFY23) and 8.8% YoY basis in the first nine months of the financial year ending March 2023 (9MFY23). It’s safe to say that the profitability growth could have been higher without the impact of super tax and it took a major chunk of the company profits across multiple sectors.

Earnings across Different Sectors

The KSE-100 Index has multiple sectors, while some sectors underperformed, there were others that reported impressive profits despite the dismal economic performance led by various factors such as the stalled International Monetary Fund (IMF) tranche, the political turmoil and dwindling foreign exchange reserves that pushed the country close to the brink of a major economic collapse.

In Q3 of FY23, the KSE-100 index's earnings surged by 30.3%. The banking sector led this growth, rising by 21.8% due to higher interest rates. Oil and gas exploration also saw a rise in profits, increasing by 60.5% due to a massive exchange gain brought on by currency depreciation.

The chemical sector also experienced growth, thanks to a one-off gain by LCI. Lastly, the textile and steel sectors saw a significant surge in profits, rising by 597% and 34 times respectively, mainly due to the recovery of ILP and ISL profitability which were in negative territory during the previous quarter.

Here’s a detailed analysis of all the sectors that made profits while others had an unimpressive run amidst the political headwinds.

Commercial Banks

In the first nine months of the fiscal year 2023, the earnings of different sectors showed impressive growth in Pakistan. The Commercial Banks sector experienced a 43% increase in earnings, reaching PKR 303bn. This growth was mainly due to a significant rise in interest rates. However, the growth in Profit before Tax (PBT) was even more impressive at 53.6%. This was because the bank had to pay a heavy super tax charge during the year, which reduced the growth of Profit After Tax (PAT).

Oil and Gas Exploration

The Oil and Gas Exploration sector also showed impressive growth, with earnings increasing by 49.2% YoY to PKR 312bn. This growth was due to higher oil prices and exchange gains due to the depreciation of PKR.

Cement

The Cement sector showed a 27.4% increase in earnings to PKR 27.6bn, even though there was an 18% YoY volumetric decline and a hike in energy tariffs. This was because the sector used cheaper coal from Afghan and local markets and had higher retention prices. Overall, the Cement sector witnessed a growth of 35.7% YoY. In addition, the Steel sector reported an increase in earnings of 43.1% YoY, thanks to improved margins.

Chemical and Technology Sector

The Chemical sector's profitability surged by 43.1% YoY due to a one-off gain by Lucky Core Industries Limited (LCI) on the sale of NutriCo Morinaga. Excluding this one-off gain, the sector's profitability would have declined by 10% YoY. Lastly, the Technology sector's earnings showed significant improvement, posting a PAT of PKR 3.5bn as compared to LAT of PKR 6.7bn during the same period last year.

Dismal Performance in Sectors

However, some sectors didn't perform well during 9MFY23. Let's look at some sectors that were not up to the mark.

Fertilizer Sector

The Fertilizer Sector is generally a favourite among investors. Whether it's the retail investors, the mutual funds or high-net-worth individuals, this sector attracts an impressive number of investors but during the first nine months of the Financial year 2023, the sector witnessed a drop of 13.9% YoY to PKR 63bn. The reason behind the drop is FFBL’s disappointment pertaining to the exchange and inventory losses as well as the super tax impact on the sector. The negative effects of super tax were visible throughout the sector.

Oil and Gas Marketing Sector

Additionally, the Oil and Gas Marketing sector experienced a significant drop of 73.5% YoY in earnings to PKR 20bn due to massive inventory losses and the absence of penal income during the period.

Steel and Power Sector

The Power sector had a loss after tax of PKR 1.9bn, as KEL experienced a loss in 9MFY23. The Steel (Engineering) sector was also under pressure, as margins were reduced due to LC issues, high input prices (scrap and HRC), PKR depreciation, increased energy tariffs, and higher borrowing costs, leading to a 56.6% YoY drop in PAT to PKR 4.2bn.

Refinery Sector

The Refinery sector earnings also decreased by 6.5% YoY to PKR 7.5bn, mainly due to a massive loss posted by Cnergyico PK Limited. Finally, the automobile sector had a loss after tax of PKR 7.7bn, as the sector struggled amid CKD import restrictions and a decline in demand.

In the third quarter of the financial year 2023, there was a 12.7% year-on-year growth in profitability, bringing it to PKR 353 billion. This was largely due to strong results in sectors that hold a significant position in the market index.

Other Sectors

The Automobile sector recorded a loss of PKR 7.1bn, compared to a profit during the same period last year. Similarly, the Pharmaceutical sector saw a decline of 81.1% YoY, and the Refinery sector's earnings dropped by 41.7% YoY.

Winners and Losers

To sum it up, some sectors recorded growth and impressive profits such as Commercial banks, Oil and Gas Exploration, Cement, and Chemical sectors. Alternatively, Fertiliser, Oil and Gas Marketing, Power, Steel (Engineering), Refinery, and Textile, Steel, Technology, and Automobile sectors underperformed.

Frequently Asked Questions

How can I start investing in the Pakistan Stock Exchange (PSX)?

To become an investor in Pakistan, you’ll need to open an account with a brokerage firm in Pakistan. Visit the official PSX website and have a look at the listed firms on the website with rankings. In the second step, you’ll be required to complete the account opening formalities. Provide the required documents (such as your CNIC, proof of residence, and income sources). Once your account is active, you can start buying and selling stocks through your brokerage firm, either online or by contacting your broker.

What are some key factors to consider when selecting stocks for investment in the PSX?

When selecting stocks for investment, consider the company's financial health, growth potential, dividend history, and industry outlook. Analyze the company's financial statements and cash flow statements among others. Additionally, consider the overall economic and political environment in Pakistan, as these factors can influence stock market performance.

How can I diversify my investment portfolio in the Pakistan Stock Exchange?

A diversified portfolio helps you curb the risk of capital erosion and gain maximum returns on your investment. Invest in different types of stocks across multiple sectors. Please be aware that you need to have comprehensive knowledge about how markets work. If you don’t have sufficient knowledge, you can invest in mutual funds or an Exchange Traded Fund or ETF.

Bottomline

Pakistan Stock Exchange is one of the most resilient markets, and over the years its performance has shown significant growth. Those interested to invest in PSX should be well-versed in the Fundamentals of the Capital Market. Sarmaaya Financials, an SECP-registered company offers premium courses that will help you understand the key economic indicators, how to choose the right stocks for investments and the overall macro-economic aspects of Pakistan and the economy.

Do Your Research

We can’t stress this one enough! Do your research extensively and try to keep up with the new market trends. Subscribe to Subcribe to Sarmaaya Financials' blogs, they’ll help you keep up with the industry.