Profit-taking pulls PSX down from 99,300 to a modest close in rollercoaster session

• Market opens with sharp 600-point drop owing to political concerns.
• Positive macros, IMF optimism, declining bond yields drive bull-run.
• Oct C/A surplus of $349m; reserves at 2-year high boost sentiment.

Stocks on Monday recorded modest gains after a daylong rollercoaster ride, driven by political jitters from Pakistan Tehreek-e-Insaf's (PTI) 'do-or-die' march toward Islamabad, supported by macroeconomic resilience.

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index gained 281.55 points or 0.29% to close at 98,079.78 points. 

The apex index surged by 1,519.24 points, or 1.55%, to hit an intraday high of 99,317.47 points after declining by over 600 points right after the opening bell.

Muhammad Saad Ali, Director of Research at Intermarket Securities, noted: "Politics is a major factor in the dip in early trading." 

"Profit-taking kicked in on Friday after the index nearly hit 100,000 points. Additionally, this is the rollover week for futures investors, which could lead to heightened selling activity," he added.

The market's resilience comes amid heightened political uncertainty and strict security measures in major cities, including Islamabad and Lahore.

Market participants attributed the gains to strong fundamentals, improving macroeconomic indicators, and optimism over declining lending rates.

Analysts pointed to several factors contributing to the market’s continued rise.

Despite these pressures, the market remained optimistic due to declining fixed-income yields, a current account (C/A) surplus of $349 million in October, and positive remarks from the International Monetary Fund (IMF) after a recent review.

Tahir Abbas, Head of Research & Investment Strategy at Arif Habib Limited, highlighted the market's valuation appeal: "The valuation is extremely attractive. In the current scenario of declining interest rates, fixed-income returns are becoming completely unattractive and are expected to fall into single digits.”

"Additionally, a major reason for this positive sentiment is that as long as our macroeconomic indicators remain stable or improve, the market will continue to maintain positive momentum," he added.

Earlier in the month the SBP cut its key policy rate by a record 250 basis points to 15%, further cuts are expected with falling inflation numbers.

Among the notable developments, the State Bank of Pakistan (SBP) raised Rs350 billion in an auction of Pakistan Investment Bonds (PIBs), where yields fell up to 19 basis points.

The government raised Rs350 billion through the auction of Pakistan Investment Bonds (PIBs), exceeding the target of Rs300 billion, with yields on five-year and 10-year papers falling to their lowest levels since March 2022.

The cut-off yield for the two-year zero-coupon bond decreased by 19 basis points (bps) to 13.0%. Meanwhile, the cut-off yield for the three-year bond remained unchanged at 12.5%.

The yields for the five-year and ten-year bonds also fell, decreasing by 9bps and 14bps, respectively, settling at 12.7% and 12.838%.

The current account surplus added another layer of confidence, with the State Bank of Pakistan (SBP) reporting a surplus of $349 million for October 2024 — the third consecutive monthly surplus.

This improvement is attributed to a 7% month-on-month and 24% year-on-year increase in remittances. Foreign exchange reserves also reached a two-year high, bolstering confidence in the country’s economic recovery.

Cumulatively, the current account surplus for the first four months of FY25 stood at $218 million, compared to a deficit of $1.53 billion during the same period last year.

Foreign Direct Investment (FDI) also demonstrated robust growth, increasing by 32% year-on-year to $904.3 million during the July-October period.

October saw a slight dip in FDI compared to the same month last year. Total foreign investment inflows for the period reached $1.242 billion.

With reserves projected to cross $11 billion in the coming weeks, local mutual funds have actively shifted investments from fixed-income securities to equities, driving the benchmark index’s 20% surge since September.

The PTI protest, led by party leaders and supporters, comes with demands to revoke the 26th Constitutional Amendment, restore democracy, and release detained political workers. Despite a government crackdown, caravans of protesters have moved toward Islamabad, defying court orders and stringent security measures.

The timing of the protest coincides with the upcoming visit of the Belarusian president and heightened political tensions across the country. Communications services in major cities, including Karachi and Islamabad, have been disrupted as part of government measures to contain the demonstrations.

The KSE-100 Index, which briefly crossed the 99,000-point mark in intra-day trading last week, remains on track to reach historic highs.

With favourable economic indicators and robust liquidity, equities continue to present an attractive asset class for investors, maintaining their upward trajectory despite political headwinds.