Stocks on Monday breached the 92,000-point threshold as investors rushed to amass policy rate-sensitive shares ahead of a crucial central bank meeting, highly anticipated to extend its existing hawkish monetary regime, eventually reducing borrowing costs, and boosting economic activity.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Shares Index gained 1,157.51 points, or 1.27%, rising to 92,017.36 points during the intra-day trade, up from the prior session’s 90,859.85 points.
The capital market staged a massive rebound on Friday, ending 2.1% higher at 90,860 points, driven by robust foreign inflows totalling $5.4 million, while mutual funds shifted to net selling.
Speaking to Geo.tv, Ahsan Mehanti, senior analyst at Arif Habib Corp, said stocks hit an all-time high as investors were anticipating a major SBP rate cut following a 3.4% drop in NSS (national saving schemes) rates due to October’s 7.2% CPI (consumer price index) inflation.
“Investment pledges of $3 billion from Qatar, $2.8 billion from Saudi Arabia, and rupee stability also fueled record bullish activity at the PSX,” Mehanti added.
Last week, Information Minister Attaullah Tarar said that Qatar would invest $3 billion in diverse sectors of Pakistan, including trade, investment, culture and others following the successful visit of Prime Minister Shehbaz Sharif.
Investors are eyeing the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) meeting later today, anticipating a significant rate cut of 200-300 basis points, which could further buoy investor sentiment.
Saad Ali, Director Research at Intermarket Securities Ltd , told Geo.tv, the market was currently witnessing a broad-based rally ahead of the MPC meeting today, expecting an up to a 200bps cut.
“Market witnessed a broad-based rally ahead of the MPC meeting today, in which the market is expecting up to a 200bps cut. Investors are ignoring such negative news as stalling of PIA privatisation, delays in launch of panda bonds and IMF not allowing relaxation in tax targets,” Ali said.
Samiullah Tariq, Head of Research at Pakistan Kuwait Investment Company, echoed Saad’s views, saying that the mostly upbeat broader economic conditions also contributed to the market’s rise.
The committee reduced the policy rate from 22% to 20.5% on June 10, 2024, and reduced it by 1% to 19.5% in July. Further, on September 12, 2024, the State Bank reduced the policy rate from 19.5% to 17.5%.
The MPC consists of ten members, with the Governor as Chairman, three members of the Board nominated by the SBP Board, three senior executives of the SBP nominated by the Governor, and three external members (economists) appointed by the federal government on the recommendation of the SBP Board.
According to a poll conducted by Reuters, the central bank is expected to cut its key interest rate further at its policy meeting, with policymakers continuing their efforts to revive a fragile economy as inflation eases off recent record highs.
Inflation for October clocked in at 7.2%, slightly above the government’s expectation of 6-7%. The finance ministry expects inflation to slow further to 5.5-6.5% in November.
However, inflation could pick up again in 2025, driven by electricity and gas tariff hikes under the new $7 billion IMF bailout, and the potential impact of taxes on the retail and wholesale sector proposed in the June budget.
All 15 investors and analysts surveyed by Reuters expect the central bank to cut rates next week. Two expect a 150 bps cut, twelve predict a 200 bps reduction, and one forecasts a 250bps cut.
Economic activity has stabilised since last summer when the country came close to a default before an eleventh hour bailout by the IMF.
The IMF, which in September gave a boost to Pakistan’s struggling economy by approving a long-awaited $7 billion facility, said that the South Asian nation had taken key steps to restore economic stability with consistent policy implementation under the 2023-24 standby arrangement.
This is a developing story and is being updated with more details.
