PSX scales peak on rate cut, healthy indicators

KARACHI:

In an outstanding rally during the outgoing week, the Pakistan Stock Exchange (PSX) posted significant gains of over 2,400 points, driven predominantly by the State Bank of Pakistan's (SBP) decision to lower its policy rate by 2.5 percentage points.

The rate cut was interpreted by market analysts as a positive signal for liquidity and economic stability, lifting investor confidence. In addition, the government's Sukuk auction raised a significant amount, with yields across all tenors contracting, which underscored continued investor appetite for government-backed securities.

On the economic front, workers' remittances grew to $3.1 billion while the SBP's foreign exchange reserves rose $18 million to $11.17 billion. At the beginning of the week, stocks surged to a new all-time high as the KSE-100 index climbed nearly 1,100 points to close just short of the 92,000 mark.

The bourse extended its record-breaking rally next day as well following a 2.5-percentage-point reduction in policy rate and robust remittances for October 2024.

On Wednesday, the index retreated from highs, losing over 280 points, fueled by the consolidation of positions by investors with the end of corporate earnings season.

The following day, bulls made a strong comeback sending the KSE-100 to a fresh record high, as investors expected a ratings upgrade and injection of fresh Saudi investment. In a historic rally on Friday, stocks soared past the 93,000 mark for the first time ever, taking cue from rising global equities and falling local lending rates.

The benchmark KSE-100 index closed at 93,292, marking a robust increase of 2,432 points, or 2.7% week-on-week (WoW).

JS Global Deputy Head of Research Muhammad Waqas Ghani, in his review, wrote that the stock market remained bullish during the outgoing week, closing at 93,292, an increase of 2.7% WoW. Average volumes increased 31% to 735 million shares.

During the week, the SBP cut its policy rate by an additional 250 basis points to 15%. The decision was mainly influenced by the declining inflation trend, which marked the fourth consecutive rate cut in the ongoing monetary easing cycle, bringing the cumulative reduction to 700 basis points from the peak of 22%, he said.

The market got a boost when eight Pakistani companies were added to the MSCI Frontier Markets Small Cap Index, a move that was expected to attract global investors and accelerate foreign fund inflows.

As per the Federal Board of Revenue (FBR) data, income tax collection faced a shortfall during 4MFY25. In other news, the government was preparing to finalise its strategy for talks with the International Monetary Fund (IMF) staff mission from November 11 to 15.

Moreover, Prime Minister Shehbaz Sharif sent a special delegation to Saudi Arabia to finalise $2.8 billion worth of agreements signed recently by the two countries.

According to the SBP data, remittances for October 2024 reached $3.05 billion, marking a 24% increase compared to the same period of last year, the JS deputy research head added.

AHL Research, in its report, said that throughout the week the market showcased a stellar performance, taking the KSE-100 index to an all-time high of 93,292 points. The robust momentum was driven by the SBP's historic 250-basis-point cut in policy rate.

In the quarterly MSCI review, Pakistan's weight in the MSCI Frontier Markets Index rose to 4.4%, making it the second most liquid market.

The government raised Rs339 billion through Ijarah Sukuk, with yields declining 43 to 104 basis points. During the week, Pakistani rupee remained stable and closed at Rs277.95 against the US dollar.

Sector-wise, positive contributors were fertiliser (505 points), cement (404 points), power generation and distribution (376 points), oil and gas exploration companies (320 points) and automobile assemblers (288 points).

Foreign selling was witnessed during the week under review, which amounted to $4.65 million compared to net buying of $1.97 million last week.