Karachi, November 2, 2024 – The stock market is bracing for a potentially bullish trend next week as investors gear up for a possible aggressive policy rate cut by the State Bank of Pakistan (SBP). This shift could inject renewed vigor into the market, as analysts and investors keenly await the SBP’s upcoming monetary policy meeting.
Arif Habib Limited’s analysts predict a positive trajectory for the stock market amid strong anticipation of a 200 basis points (bps) reduction in the policy rate, which, if implemented, would lower the rate to 15.50%. Market watchers believe such a substantial cut would enhance investor sentiment, spurring higher liquidity and stimulating various sectors within the economy.
In the past week, the PSX’s KSE-100 index exhibited a strong performance, buoyed by a combination of policy expectations and robust corporate earnings reports. The index reached an intraday record high of 91,358 points on October 29, 2024, reflecting investor optimism in anticipation of supportive fiscal and monetary policies. This milestone comes amid a favorable economic backdrop, including a budget surplus of PKR 1.7 trillion, the first such surplus since the second quarter of fiscal year 2004. Additionally, a primary surplus of PKR 3 trillion has strengthened Pakistan’s fiscal outlook.
Moreover, foreign investment has gained momentum, as Saudi Arabia committed an additional USD 600 million to Pakistan, bringing its total investment to USD 2.8 billion. This financial support from Saudi Arabia, coupled with an uptick of USD 116 million in SBP reserves (now at USD 11.2 billion), has bolstered investor confidence in the country’s economic stability.
The KSE-100 index ended the week at 90,860 points, marking an 866-point or 0.96% week-on-week increase. This performance was propelled by a strong 1,893-point rally on Friday following a brief correction earlier in the week. Sectoral performance reflected a broad-based rally, with notable positive contributions from exploration and production (E&P) companies, technology, cement, oil marketing companies (OMCs), and pharmaceuticals. Among the leading contributors, E&P stocks added 391 points to the index, followed by technology with 319 points, and cement with 244 points.
On an individual stock basis, SYS, Pakistan Petroleum Limited (PPL), United Bank Limited (UBL), Pakistan State Oil (PSO), and Cherat Cement Company (CHCC) were the week’s top gainers, adding substantial points to the overall index. However, sectors such as fertilizers, leather & tanneries, and engineering witnessed some downturns, with fertilizer stocks detracting 331 points from the index.
Foreign interest in the PSX was notable, with a net buying of USD 1.97 million, a significant turnaround from the net sell of USD 16.36 million last week. This influx was primarily driven by strong buying across multiple sectors, led by cement, where foreign investors invested USD 2.4 million. On the domestic front, however, banks and development financial institutions (DFIs) were net sellers, with a total sell-off of USD 13.1 million.
Trading volumes averaged 559 million shares, showing a week-on-week decrease of 16.5%, while the average value of traded shares stood at USD 95 million, down 9.3% from the previous week. Nevertheless, market sentiment remains optimistic as investors expect a rate cut that could unlock further upside potential for the stock market.
Looking ahead, all eyes will be on the SBP’s monetary policy decision next week. A rate cut could serve as a catalyst, enhancing the appeal of equities and driving a stronger performance for the PSX. As the KSE-100 index continues to trade at a price-to-earnings ratio of 4.6x, well below its five-year average of 5.9x, analysts suggest that attractive valuations and a potential dividend yield of approximately 9.6% could make the stock market an enticing avenue for investors seeking long-term growth.
Investors are advised to stay vigilant as market dynamics evolve. The SBP’s decision could either solidify current gains or prompt caution if the rate cut falls short of expectations, underscoring the high-stakes nature of next week’s developments in Pakistan’s financial landscape.
