IMF hopes spark rally, take PSX to 40,000

Bulls maintained their control over Pakistan Stock Exchange (PSX) throughout the outgoing week as the benchmark KSE-100 index surged over 2,000 points in the wake of optimism about progress in talks with the International Monetary Fund (IMF). The week commenced on a flat note with slight gains as investors remained cautious ahead of the monetary policy announcement on expectations of a hike of 100 basis points (bps) in the key policy rate.

However, investor interest rejuvenated on Tuesday following the monetary policy announcement, which came in line with expectations, and the KSE-100 index rallied with a gain of over 600 points. Bulls maintained their grip next day as well with hopes of revival of the IMF loan programme as the government was eager to meet the lender’s requirements. Government’s decision to end control over the rupee-dollar exchange rate boosted investors’ confidence, which tossed the index above the 40,000-point mark on Thursday.

However, investors came under pressure on Friday owing to the rising political temperature coupled with downward trajectory of the rupee, which hit an alltime low of Rs262.60 against the US dollar. Profit-taking emerged, which pulled the index down by nearly 400 points in the closing session. The benchmark KSE-100 index closed the week up by 2,043 points, or 5.3%, at 40,450 compared to the previous week. “KSE-100 continued its upward trajectory throughout the week, rising by 2,438 points (+6.3%) over three consecutive sessions before some profit-taking on the last trading day of the week,” said JS Global analyst Muhammad Waqas Ghani.

The key outperformers were refineries (+8.7% week-on-week), exploration and production (E&P) firms (+7%) and cement companies (+6.7%). The Monetary Policy Committee on Monday announced a 1% hike in policy rate, taking it to 17%, broadly in line with market estimates. The banking sector closed up 6% week-on-week, he added. During the week, the government shared its clear and strong commitment to meeting the IMF’s requirements. Later, the rupee lost 9.6% of its value in a single day, taking week-on-week depreciation to 12.5%. State Bank’s reserves declined due to external debt repayments, touching a nine-year low of $3.6 billion, the JS analyst said. Arif Habib Limited, in its report, said that the market remained flattish at the opening bell owing to concerns over a massive hike in the policy rate. However, the index experienced a strong momentum after the SBP announced only a 100bps increase in its policy rate. Moreover, the government made a bold call to resume the IMF programme and announced that it would undertake tough measures to meet the pre-requisites (such as a hike in gas and electricity tariffs and imposition of additional taxes and flood levy). During the week, the government implemented a market-determined exchange rate, which resulted in the rupee depreciating to a historically low level of Rs262.60 against the US dollar (depreciating by Rs35.93, or 15.64%, week-on-week).

In response, the IMF agreed to send a mission to Pakistan in the coming week. Investors hailed those developments and took the market above 40,000 points. The market closed at 40,451, gaining 2,043 points, or 5.3% week-on-week, the highest weekly return since April 15, 2022. In terms of sectors, positive contribution came from banks (653 points), fertiliser (328 points), E&P (308 points) and cement (197 points). Negative contribution came from pharma (24 points) and auto parts (10 points). In terms of individual stocks, positive contributors were Habib Bank (283 points), Engro Corporation (198 points), Pakistan Services (150 points), TRG Pakistan (139 points) and Oil and Gas Development Company (126 points). Foreigners’ buying continued as they bought stocks worth $2.8 million compared to net buying of $4.9 million last week.