PSX rebounds despite initial investor sell-offs

Monetary easing, IMF progress, and strong remittances lift market sentiment

KARACHI:

The Pakistan Stock Exchange (PSX) experienced initial pressure from investor sell-offs during the past week but rebounded as positive economic developments unfolded. The State Bank of Pakistan (SBP) made a key move by cutting its policy rate by 200 basis points, reducing it to 17.5%—a level unseen since April 2020. This rate cut triggered a drop in KIBOR (Karachi Interbank Offered Rate) rates by 25 to 119 basis points across various tenors, a shift welcomed by market participants.

On the International Monetary Fund (IMF) front, the government made significant progress, with Pakistan's agenda officially added to the IMF's board meeting set for September 25, 2024. SBP reserves also saw a notable rise of $30 million, reaching $9.5 billion, while the Pakistani rupee appreciated by 0.15%, settling at Rs278.2 against the US dollar.

Trading began with a downturn on Monday, as the KSE-100 index fell by over 280 points, driven by global equity slumps and domestic political instability. However, Tuesday saw a surge of over 650 points, fuelled by a remittance boost, as remittances rose 40% year-on-year to $2.9 billion in August 2024. The market experienced volatility on Wednesday, dropping 634 points amid political uncertainty, but optimism returned on Thursday as expectations of further SBP policy rate cuts drove the index up by over 350 points.

Friday's session was marked by investor enthusiasm following the SBP's rate cut announcement and the IMF board meeting date confirmation, pushing the KSE-100 index up by over 300 points. The PSX ended the week at 79,333 points, marking a 435-point, or 0.55%, increase week-on-week (WoW).

JS Global analyst Wadee Zaman highlighted that the KSE-100 briefly crossed the 80,000-point threshold but was unable to sustain it due to end-of-week selling pressure. WoW, the index rose by 0.6%. Despite these gains, foreign investors remained net sellers, with the Foreign Portfolio Investment (FPI) posting a net outflow of $8.2 million during the week.

A key development emerged with the announcement that the IMF Executive Board is scheduled to meet in September 2024 to approve the $7 billion Extended Fund Facility (EFF). Additionally, the Federal Board of Revenue hinted at a Rs650 billion mini-budget, potentially raising withholding tax on properties and GST on tractors, alongside stricter measures against tax non-filers.

SBP's foreign reserves increased to $9.5 billion as of September 5, 2024, the highest in 26 months. Remittances for August 2024 were just shy of $3 billion, marking the fourth consecutive month of remittances around this level. Moreover, four-wheeler sales in August 2024 rose by 13% year-on-year, showing mixed results across companies.

Arif Habib Limited (AHL) reported that the stock market faced initial pressure from investor sell-offs but benefited from several positive economic factors, including SBP's continued easing cycle, the IMF's progress, and a rise in SBP reserves. The Pakistani rupee appreciated by 0.15% against the US dollar, closing at Rs278.2. The market ended the week at 79,333 points, recording a 435-point (0.55%) increase WoW.

Sector-wise, the positive contributors were fertiliser (161 points), cement (159 points), exploration and production (92 points), leather (74 points), and pharmaceuticals (54 points). Meanwhile, the commercial banking sector (119 points), automobiles (115 points), and power generation (80 points) saw negative performance.

Foreign investors sold shares worth $7.5 million during the week, compared to last week's net selling of $6.7 million.