Inflation to cool off beyond August 2022- First Capital

First Capital expects inflation to cool off beyond August 2022 and a steep dip in inflation is expected in 2Q2023 amidst the higher base effect on inflation.

The expectation of a strong recovery in earnings and positive growth levels of GDP returning from 4Q 2023 and beyond, is likely to create a strong bullish sentiment for equities. “We expect the market to re-rate allowing the index to showcase strong positive returns in 2H2023E with the index likely to reach 12,000.”

Bond yields are expected to moderate in 4Q2022E and gradually witness a decline as political instability resolves and as Govt. secures an IMF Board Level agreement. However, political stability and ability to enter an IMF support facility are key trigger point that will impact the market sentiment.

“In light of gradual improvement in economic conditions, yields are expected to moderate depending on the timing of developments that reduce the uncertainty.”

Private sector credit for the 1H2022 registered a growth of 10.5% (Rs 732.5bn) stemming from the inflationary impact of the currency depreciation. However, real credit growth is expected to be negative during 2H2022E netting off the higher credit growth as a result of sky rocketed AWPR and tightened credit conditions adopted by banks.

Following the sharp rise in policy rates in Bond yields, AWPR was expected to follow a similar suit with an accelerated pace. We expect AWPR to follow the yield of 5Yr bond thus hover in the range of 25.0%-30.0% by December-22 and reverse towards 21.0%-23.0% towards and June 23 and further dip to 16.0%- 18.0% by December-23.