The Pakistan Stock Exchange (PSX) started the week with significant gains as the benchmark KSE-100 Index soared by 2,849.44 points (2.6%) to reach 112,362.58 points. This rebound follows a prior 9,000-point decline last week, signaling renewed investor confidence due to easing political tensions.
Key Drivers of the Market Rally
- Political Stability
- The initiation of in-camera dialogue between the government and Pakistan Tehreek-e-Insaf (PTI) under National Assembly Speaker Ayaz Sadiq has reduced uncertainties, fueling investor optimism.
- Economic Indicators
- Current Account Surplus: Pakistan recorded a $729 million surplus in November 2024, its highest in a decade, compared to a $148 million deficit in November 2023.
- Strengthened foreign exchange reserves, rising remittances, and surging exports have created a favorable economic backdrop.
- Monetary Policy Easing
- The State Bank of Pakistan (SBP) cut the policy rate by 200 basis points, bringing it to 13%, lowering borrowing costs and supporting market activity.
- Improved Government Securities Yields
- Falling yields on government bonds have directed liquidity toward equities. The government successfully raised Rs382 billion through PIBs, with cut-off yields dropping by up to 55 basis points.
- Sector-Specific Developments
- Large-Scale Manufacturing: Although showing a modest 0.02% YoY growth in November, improvements reflect gradual economic stabilization.
- Power Generation: A 6% YoY increase in November (8,032 GWh) highlights recovering industrial activity.
- Foreign Investment and FDI Growth
- Foreign direct investment in November reached $219 million, a 65% MoM and 27% YoY increase, signaling restored investor confidence.
- Market Liquidity and IMF Reforms
- Economic reforms tied to the IMF program, coupled with reduced interest rates, have redirected local liquidity into the stock market, making equities more appealing than bonds, gold, or the US dollar.
Expert Insights
- Ahfaz Mustafa of Ismail Iqbal Securities highlighted the market’s reaction to political calm and renewed investor confidence following last week’s correction.
- Ahsan Mehanti of Arif Habib noted that a combination of lower lending rates, robust government bond yields, and strong economic indicators played a pivotal role in the rally.
Additional Supporting Factors
- Sector-Wide Gains: Mutual funds and high-net-worth individuals contributed to broad-based buying across sectors.
- Gas Tariff Proposal: OGRA’s suggestion to increase gas rates by up to 26% could attract further interest in energy stocks.
- Economic Milestones: The government’s $330 million loan agreement with ADB and strengthened social protection initiatives further bolstered market sentiment.
Outlook for PSX
The PSX’s strong recovery underscores improved investor sentiment driven by political stability, proactive monetary policies, and positive economic indicators. With momentum on its side, the market is poised for further gains if reforms and dialogues remain on track.
