The stock market experienced a turbulent session on Tuesday, with the KSE-100 Index briefly surpassing the 117,000-point milestone during early trading before facing significant profit-taking.
Initial gains were driven by investor optimism following the State Bank of Pakistan’s (SBP) recent policy rate cut and encouraging economic indicators. However, sustained selling pressure in the second half of the session reversed the upward momentum, pushing the market into negative territory by the close.
The Pakistan Stock Exchange’s (PSX) benchmark index surged to an intraday high of 117,039.17 during early trade but later reversed course to touch a low of 113,688.54.
By close, the index had shed 1,308.73 points, or 1.13%, settling at 114,860.68.
“Some profit-taking is being witnessed today as the market has increased considerably,” said Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, reflecting investor sentiment after the recent surge.
The SBP’s decision to slash the policy rate by 200-basis point (bps) to 13% has sparked renewed interest in equities. The SBP’s decision marked its fifth consecutive rate cut, signalling an accommodative monetary stance to spur economic growth.
The policy adjustment was prompted by a sharp decline in inflation, which fell to 4.9% in November—the lowest level since April 2018. With real interest rates now at a highly positive 10%, analysts expect liquidity to shift from fixed-income instruments into equities, providing a significant boost to market activity.
SBP Governor Jameel Ahmed, speaking on Geo News programme “Aaj Shahzeb Khanzada Kay Saath”, acknowledged that inflation could temporarily rise over the next three to four months due to the base effect and pipeline factors. However, he expressed confidence that inflation would stabilise within the medium-term target range of 5-7% by June 2025. He noted that the full impact of the policy rate cut would materialise over the next four to six quarters, driving economic recovery and growth.
Ahmed further assured investors of Pakistan’s ability to meet its foreign debt obligations, supported by foreign reserves standing at $16.6 billion as of December 6, 2024. Of this, SBP reserves climbed to $12.051 billion, marking the highest level since March 2022.
Investor optimism continues to be bolstered by improving macroeconomic stability. Remittance inflows surged by 29% year-on-year in November to $2.9 billion, contributing to foreign exchange reserves and economic stability. The Current Account Deficit (CAD) narrowed sharply, falling by 79% year-on-year to $217 million in the first two months of FY2025. This improvement was supported by strong remittance inflows and stable export earnings.
Exports are projected to rise to $33 billion by the end of FY2025, while remittances are expected to reach $33.5 billion, driven by easing global inflation and government incentives encouraging formal remittance channels.
The banking sector also demonstrated resilience, with the Advance-to-Deposit Ratio (ADR) improving to 47.8% in November, up from 44.3% in October. This improvement reflects banks’ efforts to meet the mandatory lending targets to avoid additional taxation.
Additionally, the government’s successful auction of Treasury Bills (T-bills) last week raised Rs1.256 trillion. Yield reductions included the biggest cut of 100 basis points (bps) for three-month papers, lowering the rate to 11.99% from 12.99%. Six-month papers saw an 89bps reduction to 11.99%, while the yield on 12-month papers was trimmed by 5bps to 12.3%.
Signs of economic recovery remain evident, particularly in consumer activity. Passenger car sales rose by 52% year-on-year in November, while cumulative growth for the first five months of FY2025 stood at 50%, highlighting a revival in demand and consumer confidence.
The stock market extended its record-setting spree on Monday on the back of aggressive value-hunting, helping the KSE-100 Index achieve a new milestone above 116,000. The KSE-100 Shares Index gained 1,867.61 points, or 1.63%, to close at 116,169.41, after hitting an intraday high of 116,681.59 points.
The PSX’s continued rally reflects strong investor sentiment underpinned by easing inflation, improving macroeconomic indicators, and fiscal reforms.
Analysts remain optimistic that the SBP’s rate cut, combined with ongoing economic stability and liquidity inflows, will maintain the market’s upward momentum in the weeks ahead.
