PSX retreats from 91,000 in volatile session, closes at all-time high

• Market abuzz with speculations of rate cut up to 200 basis points.
• Improving macroeconomic indicators driving earnings season rally.
• Analyst says govt efforts to privatise loss-making SOEs boost morale.
  

Stocks rallied on Monday amid bets that central bank was set to extend its hawkish monetary stance in its November 4 meeting; however, late profit-taking dragged the market down from an intraday high above 91,000 points — in a first for the index.

Pakistan Stock Exchange's (PSX) benchmark KSE-100 shares index  gained only 201.55 points or 0.22% to close at a yet another all-time high of 90,195.51 after reaching an intraday peak of 91,054.83 points.

The market is abuzz with conjectures of a major loosening of the monetary policy stance on November 4, while lucrative corporate results are also spurring buying in sectors such as auto, cement, banking, energy, and power generation.

Topline Securities in a note said the session was marked by volatility, with the index swinging between a high of 91,055 and a low of 89,733 points as investors massively booked profits in an overbought market.

Expectations of a potential rate cut and robust earnings fuelled upward momentum, the brokerage said adding that Pakistan’s $1.4 billion loan application to China also strengthened morale.

Top contributors included Systems Limited , Colgate-Palmolive (Pakistan) Limited, Pakistan State Oil Company Limited, Pakistan Oilfields Limited, and Pakistan Petroleum Limited, which together added 341 points to the index. 

Trading activity was intense, with a turnover of 566 million shares valued at Rs 29 billion. Fauji Foods Limited, recording 53 million shares, emerged as the volume leader.

Commenting on the rally, Tahir Abbas, analyst at Arif Habib Limited (AHL) said: "The market is on a roll, driven by a combination of improved macroeconomic indicators, a stabilised exchange rate, and growing investor confidence following positive government policy initiatives."

The recent easing of inflationary pressures and declining interest rates have also contributed to increased liquidity, encouraging investors to take fresh positions in equities, Abbas said.

The rupee has been mostly stable against the US dollar in the inter-bank market, while the current account recorded a surplus of $119 million in September.

Sana Tawfik, Head of Research at AHL, told Geo.tv that the market was constantly on the rise primarily due to the result season as well as the country's improved liquidity.

Speaking on the sidelines of the 2024 IMF-World Bank Annual Meetings in Washington DC, State Bank of Pakistan (SBP) Governor Jameel Ahmad expected the foreign exchange reserves of the country to reach $13 billion by the end of this fiscal year (FY2025). 

According to Ahmad, a strong rise in both exports and worker remittances is the main reason for the current account balance's improvement. 

Finance Minister Muhammad Aurangzeb, who is leading the Pakistani delegation at the annual meetings of the international financial institutions' meetings, on Sunday said: “Our foreign reserves have increased to $11 billion." 

"We have reduced reliance on foreign loans. All banks are ready to cooperate with the government,” he noted while addressing a press conference after concluding the US visit.

It must be noted that as of October 11, 2024, the SBP's foreign exchange reserves had grown from a low of $3.1 billion at the end of January 2023 to $11 billion thanks to the low current account and better financial inflows.

Arif Habib Corp's Ahsan Mehanti said that there were very strong vibes that the SBP would go hawkish on the policy rate in its upcoming meeting, while the ongoing government deliberations on privatisation of loss-making state-owned enterprises (SOEs) also helped boost morale.

In its previous meeting, the SBP's Monetary Policy Committee (MPC) announced its most significant rate cut since April 2020, decreasing the key policy rate by 200bps to 17.5% due to moderating inflation and falling international oil prices. The central bank slashed the policy rate by 350bps in July and September 2024, resulting in a cumulative reduction of 450bps since June 2024.

If reduced then it would mark the fourth consecutive rate cut since the SBP began reversing interest rates in June 2024, signalling a notable improvement in the country’s macroeconomic outlook and a shift in the central bank’s monetary policy stance.

Speculations of a policy rate cut of up to 400bps by December are doing rounds of the market, as according to analysts the room for easing exists, which has also rekindled foreign investors' interest in the country’s capital market.

Inflation dropped 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).