PSX records strong recovery of 3,238 points on positive macros

The stock market rebounded on Friday, recovering from the previous day’s historic losses as investors took advantage of attractive valuations and positive economic indicators.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index surged by 3238.17 points, or 3.05% to close at 109,513.14. The recovery came from yesterday's historic single-day fall of 4,795.32 points or -4.32%, reflecting strong investor optimism.

The strong recovery came after a week marked by intense volatility and profit-taking that led to steep declines.

"Market is recovering after profit-taking as valuations have become attractive," said Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, attributing the renewed interest to improved sentiment and compelling entry points for investors.

Recent data from the State Bank of Pakistan (SBP) revealed a 112% year-on-year surge in profit and dividend repatriations by multinational companies, reaching $1.128 billion in the first five months of FY2025. November alone accounted for $321.6 million, a 586% year-on-year increase, although this marked a 22.3% month-on-month decline due to the clearing of pending payments and eased restrictions on dollar outflows.

The government introduced The Tax Laws (Amendment) Bill, 2024, proposing stringent measures against non-filers. The legislation includes barring non-filers from purchasing vehicles above 800cc, real estate, and shares beyond specific limits, while also restricting their ability to open bank accounts or execute large financial transactions. 

The Federal Board of Revenue (FBR) has been granted powers to freeze accounts and properties for non-compliance. These measures have raised concerns over reduced liquidity and spending, contributing to investor caution.

"We have observed significant correction in the market over the past few days, with considerable profit-taking. Now, following the profit-taking, the fundamentals remain intact, and valuations have become even cheaper," said Sana Tawfik, Head of Research at Arif Habib Limited.

Despite the recent market fluctuations, Pakistan’s macroeconomic fundamentals continue to strengthen. The country recorded a $729 million current account surplus in November, the largest since February 2015. For the first five months of FY2025, the surplus stood at $944 million, compared to a $1.67 billion deficit in the same period last year. 

This improvement was driven by a reduction in the trade and services deficits and lower interest and dividend repatriations.

Foreign direct investment (FDI) also rose 31% year-on-year to $1.124 billion, with significant inflows from China, Hong Kong, and the United Kingdom. Meanwhile, remittances grew by 29% year-on-year in November to $2.9 billion, bringing the five-month total to $14.8 billion.

The SBP’s 200 basis point rate cut, which reduced the policy rate to 13%, reflects efforts to stimulate economic growth amidst easing inflation, which fell to 4.9%, its lowest level since April 2018.

Friday’s session followed Thursday’s historic sell-off, during which the KSE-100 Index plummeted 4,795.32 points (-4.32%) to close at 106,274.97, marking the steepest single-day decline in PSX history. 

The sell-off was driven by year-end redemptions from local mutual funds and institutional profit-taking, with heavyweight stocks such as MARI (-10%), HUBC, UBL, OGDC, and ENGRO collectively contributing over 1,500 points to the decline, according to Topline Securities.

Despite the negative sentiment, trading volumes remained robust, with 1,155 million shares traded and a turnover of Rs 56.6 billion.