PSX powers ahead on bets of monetary easing, corporate earnings outlook

Stocks powered ahead for a second straight day on Friday as sentiment drew strength from bets on lucrative corporate earnings and further monetary easing, driving aggressive buying throughout the session.

The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index secured 1049.32 points, or 0.93%, to close at 114,255.72, after hitting an intraday high of 115,106.99, reflecting sustained investor confidence, while the lowest level of the session was recorded at 113,692.87.

“Stocks were bullish, led by scrips across the board on investor speculations over earning announcements,” said Ahsan Mehanti, Managing Director and CEO of Arif Habib Commodities. 

“SBP hints at further rate cuts amid thin inflation, government measures, rupee stability, and falling government bond yields played a catalytic role in the record surge at PSX,” he added.

State Bank of Pakistan (SBP) Governor Jameel Ahmad highlighted that cooling inflation provided "ample room" for further monetary easing, further boosting investor optimism. 

In an interview with Bloomberg TV on Tuesday, Ahmad noted that both headline and core inflation were trending downward, allowing the central bank flexibility to cut interest rates further after reducing the policy rate to 12% on Monday.

Pakistan’s inflation, which peaked at 38% in May 2023, has now recorded a single-digit increase in recent months. Analysts anticipate further easing, reinforcing expectations of additional rate cuts in the coming months.

Despite the market’s robust performance, concerns over Pakistan’s foreign exchange reserves persisted. The SBP reported a decline of $76 million in reserves, bringing the total to $11.372 billion in the week ending January 24. The central bank attributed the decline to external debt repayments, which continued to weigh on the country’s financial position.

Total foreign exchange reserves fell by $137 million to $16.052 billion, while reserves held by commercial banks declined by $61 million, settling at $4.68 billion. The drop in reserves highlights ongoing external financing challenges, with financial inflows failing to offset debt servicing obligations.

Looking ahead, analysts anticipate continued volatility as investors closely watch corporate earnings reports and key macroeconomic developments.