Pakistan's Mutual Fund Industry

Pakistan’s mutual funds industry has grown at a quick pace as the economy gradually recovers from the impact of Covid-19. The industry’s AUM reached PKR 995 bn (USD 6.5 bn) in December 2020, as a result of high returns and new investments.

Summary

Pakistan's domestic economy has started to gradually recover from the impact of the COVID-19 pandemic which slowed down industrial activities and bought various businesses to a halt.

Industrial activity has picked up in various sectors with the Large Scale Manufacturing Industries output increasing ~7.85% YoY during the first seven months of FY21. The sectors which have contributed to this growth are textiles, food & beverages, pharmaceuticals and chemicals. Food & Beverage sector holds a sizable portion of the Index market capitalization, therefore is a positive sign for the Sector.

As a result, the stock market has also gradually moved in a positive direction as the economic recovery has picked up due to which investor confidence in the market has also increased. KSE-100 Index return for the first quarter of CY21 was recorded at ~2% and was impacted by the continued uncertainty resulting from a third wave of COVID-19 in the country. Following a sluggish movement of over two fiscal years, the KSE-100 benchmark has crossed over 45,000 points (12-Jan-21).

There has been significant growth in the mutual funds market in recent months as total industry AUMs have risen at a quick pace and reached PKR~955bln in Dec-2020. This growth is AUMs is attributable to both higher level of returns as well as new investments in mutual funds during the period.

The decision taken by the State Bank of Pakistan (SBP) to lower the policy rate by 625bps to 7% in the last quarter of FY20 has lowered the finance costs.

The inflation level in the country has also declined. The average inflation rate during 9MFY21 stood at ~8.36% as compared to an average inflation rate of ~10.7% during FY20. Moreover, the exchange rate is also expected to remain stable in the near future.

However, there is still significant uncertainty in the market due to third wave of COVID-19 across the globe. While global capital markets are also showing signs of recovery, a strict lockdown or closure of business activities across major economies can have an indirect impact on Pakistan’s market where the country’s export destinations are concentrated.