Stocks scale new peak as rate-cut optimism rally enters 3rd day

• Stocks on roll as investors go bullish on index-heavy stocks.
• Analysts expect up to 400bps reduction in policy rate this year.
• Rate-sensitive stocks i.e. banks, tech, utilities, to remain in limelight.

Pakistan's stocks on Tuesday extended the stellar rally, spurred last week by bets of an extended hawkish monetary policy by the central bank, lending rate-sensitive sectors a boost, traders said.

Pakistan Stock Exchange's (PSX) benchmark, KSE-100 Shares Index clsoed at yet another record high of 85,663.97, up 753.68 points or 0.89%, after scaling an intraday peak of 85,807 points.

Analysts say certain sectors, such as technology, real estate, financials, utilities, and consumer discretionary, tend to benefit particularly from rate cuts, allowing investors to capitalise on these dynamics during periods of economic change.

Khrram Schehzad, CEO at Alpha Beta Core, said the timely approval of International Monetary Fund (IMF) loan deal coupled with a steady decline in inflation rate has padded hopes for further reduction in policy rate.

“Consumer price inflation is expected to fall below 6-6.5% in the coming months,” Schehzad said, adding,” November is going to be a critical month owing to two major events. On the international front, US presidential election will set the tone for the global economy, while domestically, central bank’s monetary policy meeting, expected to cut policy rate by at least 220bps, will adjust the country’s growth trajectory.”

He said the monetary policy committee would again meet in December and might slash the rates by another 200bps, bringing the total reduction to 400bps before the end of the year.

On Monday, equities raced past the record high of 84,900-points mark, driven by a massive rally in the energy sector and an evergrowing optimism over potential interest rate cuts. The index ended at an all-time high of 84,910.29 points, up 1,378.34 points, or 1.65%.

Investors have upped their bets on the scope of the State Bank of Pakistan (SBP) extending its ongoing hawkish monetary policy as inflation has been retreating steadily over the past months, according to analysts.

Moreover, there are expectations of a policy rate cut of up to 400 basis points by December, as the room for easing exists.

The market is abuzz with speculations that the SBP could revise the interest rates downward even before its next scheduled meeting.

They added that the much-anticipated beginning of the central bank's long-awaited rate-cutting cycle has also rekindled foreign interest in the country’s capital market.

CPI-based inflation fell to 6.9% year-on-year in September 2024, the lowest since January 2021, down from 9.6% in August, driven by the high base effect, easing commodity and energy markets, and a stable currency, according to the Pakistan Bureau of Statistics (PBS).

Last month, the SBP's Monetary Policy Committee slashed the key policy rate by 200bps to 17.5% from 19.5%, citing a steep fall in both headline and core inflation over the past two months.