The capital market rebounded on Thursday, fuelled by robust buying in the cement sector and heightened expectations of a further interest rate cut in the upcoming Monetary Policy Committee (MPC) meeting.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index surged by 876.19 points, or 0.77%, climbing to an intraday high of 114,319.62, marking a sharp recovery after Wednesday’s significant downturn.
“Momentum is driven by the cement sector, partly due to expectations of another interest rate cut in the upcoming MPC,” said Muhammad Saad Ali, Director of Research at Intermarket Securities Ltd.
“Yesterday’s Treasury bills (T-bills) auction reinforced hopes of at least a 100-basis-point cut,” he added.
Yields on T-bills dropped in Wednesday’s auction, further fuelling expectations of monetary easing. The government raised Rs326 billion, falling short of the Rs350 billion target, with yields declining by 20-41 basis points across different tenors. The yields now stand at 11.58% for the three-month paper, 11.4% for the six-month, and 11.38% for the 12-month.
The auction saw significant investor interest, with participation reaching Rs1.4 trillion against maturities worth Rs515 billion. Analysts believe this reinforces market anticipation of a 100-bps cut during the State Bank of Pakistan’s (SBP) January 27 policy review, as inflation continues to decline.
Pakistan’s consumer price index (CPI) for January is expected to decrease to 2.8%, its lowest level since November 2015, despite a month-on-month increase of 0.6%.
The average inflation rate for the first seven months of FY25 is projected to be 6.7%, significantly lower than the 28.7% average during the same period last year. This trend supports the case for further monetary easing, which could provide additional stimulus to the equity market.
On Monday, the National Assembly was briefed on the government’s plans to address structural inefficiencies in the tax system, tackle the undocumented economy, and expand the tax base.
Minister of State for Finance Ali Pervaiz Malik emphasized that reforms are a key priority, with Prime Minister Shehbaz Sharif approving a transformation plan for the Federal Board of Revenue (FBR). These reforms aim to enhance tax compliance and improve revenue collection mechanisms.
The PSX closed sharply lower on Wednesday as concerns over the Tax Laws Amendment Bill 2024 continued to weigh on investor sentiment. The legislation, which prohibits non-filers from trading beyond specified limits, has sparked apprehension among market participants.
The KSE-100 Index fell by 1,598.82 points, or 1.39%, to close at 113,443.43. The index recorded an intraday high of 115,256.16 and a low of 113,359.38.
As investors keep an eye on the January 27 monetary policy review, market momentum is likely to hinge on signals from the SBP regarding interest rate adjustments.
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