The Pakistan Stock Exchange (PSX) witnessed an unprecedented surge on Monday, as the KSE-100 index rose by 1,056 points, reaching an all-time high. This notable increase in the stock market reflects growing optimism among investors, driven by anticipated policy changes from the State Bank of Pakistan (SBP).
Market Overview: Historic Highs and Investor Optimism
Record-Breaking Surge
The KSE-100 index climbed 1,056.57 points, or 1.15%, to reach 91,916.42 points by 12:40 pm, surpassing the previous day’s closing figure of 90,859.85 points. The market opened with an impressive leap of 1,156.70 points, pushing the index to 92,016.55 during intra-day trading. This significant rise in the index marks a milestone for the PSX, showcasing the market’s robust performance.
Trading Volume and Market Value
Monday’s trading volume was equally impressive, reaching 115,948,437 shares, with a total value of approximately Rs9.95 billion. This surge in trading activity underscores the confidence of investors in the market’s potential for growth, buoyed by positive economic indicators and policy expectations.
Economic Factors Influencing the Surge
Anticipated Policy Rate Cut
The SBP’s Monetary Policy Committee (MPC) is set to meet today to discuss interest rates, with stakeholders eagerly awaiting the decision. Analysts predict a significant 200 basis points cut in the policy rate, marking the fourth consecutive reduction since June. This anticipated cut is driven by declining inflation, a low current account deficit, and increased remittances.
Impact of Inflation Data
Stocks experienced a significant rally on Friday, fueled by mild inflation data for October. This data bolstered expectations that the central bank would maintain its hawkish monetary policy in the upcoming meeting on November 4. The anticipated policy move could lead to lower borrowing costs and stimulate economic growth.
Recent Market Performance
Weekly Gains and Investor Sentiment
The benchmark KSE-100 Shares Index surged by an impressive 1,893.09 points, closing at 90,859.85 after reaching a peak of 91,133.28 points during a late rally. This marked a sharp increase from Thursday’s closing level of 88,966.76 points. Ahsan Mehanti from Arif Habib Corp noted that the market showed a strong recovery, driven by positive data indicating a consumer price index (CPI) inflation rate of 7.2% in October.
Revised Inflation Projections
The International Monetary Fund (IMF) revised its inflation projection to 9.5% for the fiscal year 2025, contributing to the bullish sentiment. “Speculation about a potential policy rate cut next week and an increase in central bank reserves to $11.2 billion ignited record activity at the PSX,” Mehanti commented.
Foreign Exchange Reserves and Current Account Surplus
Improvement in Reserves
Pakistan’s foreign exchange reserves with the central bank rose by $116 million, reaching $11.156 billion for the week ending October 25. Total reserves increased by $32 million to $16.049 billion, although commercial bank reserves fell by $83 million to $4.893 billion. This improvement in reserves followed a current account surplus of $119 million in September, marking the second consecutive monthly surplus after a $29 million surplus in August, compared to a $218 million deficit in September 2023.
IMF Tranche and Inflation Rates
The foreign exchange reserves were also bolstered by the first tranche of $1.03 billion from the IMF under the $7 billion Extended Fund Facility (EFF) program. Pakistan’s annual inflation rate rose to 7.2% in October 2024, up from 6.9% in September, but significantly lower than the 26.8% recorded in October 2023, according to data from the Pakistan Bureau of Statistics (PBS).
Implications for the Economy
Easing Inflation Trends
The latest CPI inflation figures exceeded both market and government forecasts of 6.8%, bringing the average inflation rate for the first four months of FY2025 to 8.7%, down from 28.5% in the same period of FY2024. This trend of easing inflation, which peaked at a historic high of 38% last year, supports the case for further rate cuts.
Expected Policy Rate Decision
Financial market participants expect the State Bank of Pakistan to lower its policy rate by up to 200 basis points in the upcoming November 4 meeting. If implemented, this would represent the fourth consecutive rate cut since June, influenced by decreasing inflation, a narrowing current account deficit, and rising remittances from overseas workers.
FAQs
What caused the recent surge in the PSX?
The recent surge in the Pakistan Stock Exchange (PSX) was driven by investor optimism regarding an anticipated 200 basis points cut in the policy rate by the State Bank of Pakistan, declining inflation, and positive economic indicators.
How did the trading volume on Monday compare to previous days?
Monday’s trading volume reached an impressive 115,948,437 shares, with a total value of approximately Rs9.95 billion, indicating heightened investor activity and confidence in the market.
What are the current foreign exchange reserves of Pakistan?
As of the week ending October 25, Pakistan’s foreign exchange reserves with the central bank rose by $116 million to $11.156 billion, while total reserves increased by $32 million to $16.049 billion.
How has inflation impacted the market sentiment?
Mild inflation data for October and a CPI inflation rate of 7.2% have bolstered market sentiment, supporting expectations of a further policy rate cut by the State Bank of Pakistan.
What is the significance of the IMF’s revised inflation projection?
The IMF’s revised inflation projection of 9.5% for fiscal year 2025 has contributed to the bullish sentiment in the market, indicating confidence in Pakistan’s economic stability and growth prospects.
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