Turbulent week: PSX slumps 4,340 points

KSE-100 falls 3.7% on profit-taking, political uncertainty; ends bullish on remittances surge, UAE $2b roll over

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KARACHI:

Pakistan's stock market faced a turbulent week, with the KSE-100 index closing at 113,247 points—a sharp decline of 4,340 points (-3.7%) on a weekly basis. This downturn stemmed from institutional profit-taking, political uncertainty, and recent tax amendments restricting non-filers' participation in the Pakistan Stock Exchange (PSX).

Despite these challenges, some positive economic indicators emerged, including the World Bank's anticipated approval of a $20 billion lending package, the UAE's $2 billion debt rollover, and a 33% year-on-year increase in remittances to $17.8 billion in the first half of FY25. Additionally, T-bill yields dropped by 21-50 basis points to their lowest levels since 2022, while the government secured Rs138 billion in GIS auctions, primarily through 10-year Sukuk bonds. However, the State Bank of Pakistan's reserves dipped by $15 million to $11.69 billion, and trading volumes and values saw weekly declines of 25% and 27%, respectively.

Political turbulence, profit-taking dominate

The week began on a shaky note as the benchmark KSE-100 index experienced extreme volatility on Monday, driven by political instability and institutional profit-taking amid IMF-mandated fiscal adjustments. The index recorded an intra-day high of 1,148 points before plunging to an intra-day low of 1,645 points, ultimately closing 1.13% lower at 116,255 points. Tuesday followed a similar pattern, with the index fluctuating between 113,677 and 116,843 points before ending the session down by over 200 points. Analysts attributed the market's weakness to a depreciating rupee, mounting geopolitical tensions, and the government's measures to unlock a $1 billion IMF tranche.

Midweek, intense selling pressure led to the KSE-100 shedding over 1,904 points, closing at 114,148. Investor sentiment was dampened further by Prime Minister Shehbaz Sharif's remarks labelling existing tax slabs as restrictive, hindering business operations under the IMF programme.

Thursday brought another wave of volatility, as the index oscillated between an intra-day high of 114,329 and a low of 112,594 before closing at 112,638. A final-hour sell-off contributed to the day's significant losses, fuelled by profit-taking and lingering concerns over the government's fiscal policies.

Late-week recovery

The market regained some ground on Friday, as the KSE-100 rebounded over 600 points to close at 113,247. Investor interest in blue-chip oil and cement companies, driven by rising global crude prices and falling government bond yields, contributed to the recovery. A 29.3% year-on-year surge in December remittances to $3.1 billion and expectations of a State Bank policy rate cut later this month also buoyed sentiment.

"The market took a pause," wrote Arif Habib Limited (AHL) in its weekly commentary. The firm noted that the week's challenges included institutional profit-taking, political instability, and restrictions on non-filer investors. However, positive developments—such as the World Bank's $20 billion package, UAE's debt rollover, and remittance inflows—provided a silver lining.

Sectoral, economic highlights

Negative contributions came primarily from banks (-967 points), fertilisers (-603 points), oil marketing companies (-534 points), technology (-453 points), and cement (-367 points). Conversely, the sugar sector (+77 points), miscellaneous industries (+11 points), and REIT funds (+9 points) provided modest support.

Foreign investors were net sellers, offloading shares worth $5.7 million compared to a net purchase of $0.9 million the previous week. Wadee Zaman of JS Global highlighted the Asian Development Bank's (ADB) upward revision of Pakistan's FY25 growth forecast from 2.8% to 3.0%.

Additionally, the government proposed a phased levy on gas prices to meet IMF requirements, starting with a 5% increase and escalating to 10%. Textile exports rose by 10% to $9.1 billion during 1HFY25, while the government raised Rs434 billion in T-bill auctions, with yields declining across tenors. The Asian Infrastructure Investment Bank (AIIB) also approved a $500 million loan for the construction of the N5 highway.