Market watch: Stocks soar after policy rate cut

Benchmark KSE-100 index rises 1,502.37 points to settle at 32,831.83

KARACHI: Stocks rallied on Friday as the benchmark KSE-100 index skyrocketed over 1,500 points a day after the State Bank of Pakistan (SBP) slashed the policy rate by 200 basis points in an emergency meeting to cushion the economy from the drastic impact of coronavirus pandemic.

In intra-day trading, Pakistan stock market spiked over 1,900 points to a one-month high above 33,000 points as investors showed confidence in the measures the domestic and global financial institutions announced to support the contracting economy.

During the day, market activity was suspended briefly after the secondary benchmark KSE-30 index triggered the automated halt to trading as it soared to the 5% upper ceiling in early hours.

By the end of trading, the KSE-100 index increased by 4.8% (+1,502 points) and closed at 32,831.83. In terms of points, it was the highest increase after October 24, 2018. In terms of percentage, it was the biggest single-day rise since March 16, 2009.

Equities soared following the surprise move by the central bank to cut the key policy rate by 200 basis points to a 17-month low of 9% on Thursday evening.

Furthermore, the International Monetary Fund’s approval of a rapid financing facility for Pakistan worth $1.4 billion coupled with around 2% gain in the value of Pakistani rupee and international donors’ deferring loan payments also fuelled the bullish sentiment.

Apart from those, the government of Prime Minister Imran Khan was scheduled to give formal approval to a historic package announced for the construction industry through the presidential ordinance on Friday.

At close, the benchmark KSE-100 index recorded an increase of 1,502.37 points, or 4.8%, to settle at 32,831.83.

Arif Habib Limited, in its report, stated that the market recorded an unprecedented surge that led to a halt to trading at 10:52am for 60 minutes.

“A host of factors, all positive, from SBP’s surprise rate cut to postponement of G20 debt payment to IMF’s Covid-19 relief fund contributed to the ascend of the index,” it said.

The benchmark index registered an increase of 1,927 points during the session and closed up by 1,502 points.

Banking-sector stocks, which were not supposed to perform due to interest margin suppression, also saw an increase, touching recent highs, but they retreated by the end of session.

“Throughout the session, cement, fertiliser, steel and pharma sectors traded at their upper circuits, primarily for the reason that these sectors were largely leveraged and the rate cut helped reduce financial charges for them,” the report said.

On the other hand, West Texas Intermediate (WTI) crude price dropped to $18.05 a barrel in the international market, but it did not dent local oil and gas stocks.

JS Global analyst Danish Ladhani said the benchmark KSE-100 index shot up by almost 1,500 points after the SBP cut the policy rate by 200 basis points to 9%. The index hit an intra-day high of 2,015 points.

“Moreover, on the economic front, the IMF approved the disbursement of $1.4 billion to Pakistan under the Rapid Financing Instrument to address the economic impact of Covid-19,” he added.

Furthermore, Pakistan’s foreign exchange reserves increased to $17 billion according to the latest SBP data, he said.

“Going forward, we expect the market to remain positive and recommend investors to sell on strength,” the analyst said.

Overall, trading volumes increased to 302.4 million shares compared with Thursday’s tally of 119.1 million. The value of shares traded during the day was Rs8.6 billion.

Shares of 362 companies were traded. At the end of the day, 319 stocks closed higher, 31 declined and 12 remained unchanged.

K-Electric was the volume leader with 23.2 million shares, gaining Rs0.20 to close at Rs3.09. It was followed by Hascol Petroleum with 21.3 million shares, gaining Rs1.06 to close at Rs15.30 and The Bank of Punjab XD with 19.6 million shares, gaining Re1 to close at Rs9.25.

Foreign institutional investors were net sellers of Rs1.1 billion worth of shares during the trading session, according to data compiled by the National Clearing Company of Pakistan.