PSX rallies to record high on economic optimism amid strong indicators

• Trading remains robust, with 587m scrips changing hands.
• Systems, Lucky, Cherat, Hubco, Engro, among top performers.
• Analysts say Qatar, Saudi investment pledges boost sentiment. 

Stocks on Monday rallied to a fresh record ahead of a pivotal central bank meeting, fueled by investor optimism over a potential rate cut and a favourable economic outlook showing strength across key indicators.

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index gained 1, 078.15 points or 1.19% to close at 91,938 mark after hitting an intraday high of 92,159 points.

Key contributors to the surge included Systems Limited, Lucky Cement Limited, Cherat Cement Company Limited, Hub Power Company Limited, and Engro Corporation Limited, collectively adding 611 points to the index.

Trading activity remained robust, with 587 million shares traded, totaling Rs29 billion. The Power Cement Limited led the trading volume, with an impressive 56 million shares changing hands.

Speaking to Geo.tv, Ahsan Mehanti, senior analyst at Arif Habib Corp, said stocks hit an all-time high as investors were anticipating a major SBP rate cut following a 3.4% drop in NSS (national saving schemes) rates due to October's 7.2% CPI (consumer price index) inflation.

"Investment pledges of $3 billion from Qatar, $2.8 billion from Saudi Arabia, and rupee stability also fueled record bullish activity at the PSX," Mehanti added.

Last week, Information Minister Attaullah Tarar said that Qatar would invest $3 billion in diverse sectors of Pakistan, including trade, investment, culture and others following the successful visit of Prime Minister Shehbaz Sharif. 

Investors are eyeing the State Bank of Pakistan's (SBP) Monetary Policy Committee (MPC) meeting later today, anticipating a significant rate cut of 200-300 basis points, which could further buoy investor sentiment.

Saad Ali, Director Research at Intermarket Securities Ltd , told Geo.tv, the market was currently witnessing a broad-based rally ahead of the MPC meeting today, expecting an up to a 200bps cut.

"Market witnessed a broad-based rally ahead of the MPC meeting today, in which the market is expecting up to a 200bps cut. Investors are ignoring such negative news as stalling of PIA privatisation, delays in launch of panda bonds, and IMF not allowing relaxation in tax targets," Ali said.

Samiullah Tariq, Head of Research at Pakistan Kuwait Investment Company, echoed Saad's views, saying that the mostly upbeat broader economic conditions also contributed to the market's rise.

The central bank has slashed the benchmark policy rate to 17.5% from an all-time-high of 22% in three consecutive policy meetings since June, having last reduced it by 200 basis points in September.

Later in the day, the SBP slashed the key policy rate by 250 basis points (bps) to 15%, at least 0.5% more than the market expectations, marking its fourth consecutive cut.

"The inflation has declined faster than expected and has reached close to its medium-term target range in October," the SBP's Monetary Policy Committee (MPC) noted, adding that "the tight monetary stance continues to play an important role in sustaining the downward trend in inflation."

The MPC, which met on Monday to decide the rate, attributed the disinflation to a sharp decline in food inflation, favourable global oil prices and the absence of expected adjustments in gas tariffs and Petroleum Development Levy (PDL) rates in recent months.

Average consumer price index inflation in the South Asian country is 8.7% in the current financial year, which started in July, the statistics bureau says. The International Monetary Fund (IMF) expects inflation to average 9.5% for the year ending June.

While the economy has started to gradually recover, and inflation has moved sharply down from a multi-decade high of nearly 40% in May 2023, analysts say further rate cuts are needed to bolster growth.

October inflation came in at 7.2%, slightly above the government's expectation of 6% to 7%. The finance ministry expects inflation to slow further to 5.5% to 6.5% in November.