The capital market broke a new low on Wednesday, breaching the historic 105,000-point level as expectations of a sharp cut in interest rates gained momentum, fueled by a steady decline in inflation.
The benchmark KSE-100 shares index of the Pakistan Stock Exchange (PSX) closed at 105,104.33 points after gaining 545.26 points or 0.52 percent to touch an intraday high of 105,473.56 points.
Topline Securities said in its market wrap that continued buying by institutional investors and high volume reflected strong market confidence, bolstered by expectations of a policy rate cut at the upcoming MPC meeting.
“Major contributors to the index’s rise were Mari Petroleum Company Limited, Hub Power Company Limited, Airlink Communication Limited, Millat Tractors Limited, and Pakistan State Oil, which added a total of 442 points,” the report said. ”
Trading activity remained strong with a total volume of 1.7 billion shares and a turnover of Rs 50 billion. World Call Telecom Limited led the volume charts with 257 million shares traded during the session.
The SBI has already cut interest rates by 700 basis points (bps) in four consecutive meetings since June, bringing the rate to 15 percent.
Experts expect another substantial cut, possibly of 200 bps, at the next policy meeting as inflation settles to its lowest level in six years.
CPI inflation for November came in at 4.9%, well below the SBP’s target range of 5-7%. With inflation expected to remain in the single digits, the current policy rate of 15% provides significant scope for further rate cuts.
A survey conducted by Topline Securities showed that 71% of respondents expected a minimum cut of 200 bps, 63% predicted exactly 200 bps, 30% expected 250 bps. , and 7% expected a decline of more than 250 bps.
The reading puts inflation at a 78-month low, reinforcing the possibility of a rate cut. This decline is due to the sharp decline in food and adverse adjustments in electricity prices.
A significant drop in inflation, which reached 38 percent last year, has restored investor confidence.
After the 200bps rate cut, the real interest rate will still remain at 810 bps, higher than Pakistan’s historical average of 200-300 bps.
As the December 16 SBP meeting approaches, investors’ focus remains on a possible policy rate adjustment.
Trade data released by the Pakistan Bureau of Statistics (PBS) also supported positive investor sentiment.
Pakistan’s trade deficit during the first five months of the current fiscal year (July-November) decreased by 7.39 percent to $8.651 billion from $9.341 billion during the same period last year.
During the period, exports increased by 12.57 percent to $13.69 billion, while imports increased by 3.90 percent to $22.342 billion. The November trade deficit narrowed further, narrowing by 18.60 percent year-on-year to $1.589 billion in November 2023, compared to $1.952 billion in November 2023.