Buoyed by inflation dip, PSX tops 104,500 as rate cut bets gain traction

The capital market sustained its record-breaking momentum on Tuesday, propelled by growing economic optimism and a dramatic drop in inflation, which has invigorated investor confidence.

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Shares Index surged further, adding 1,284.13 points, or 1.24%, to hit a new high of 104,559.07.

The market's exceptional performance underscores the transformative impact of stabilising macroeconomic conditions and mounting expectations of significant monetary easing, setting a strong foundation for sustained growth.

“Subdued political uncertainty, following the sudden end of PTI rallies and continued macro improvement are continuing to drive the market,” said Muhammad Saad Ali, Director of Research at Intermarket Securities Ltd.

“Yesterday’s CPI inflation print for November strengthens the outlook for further rate cuts in the near future. The latter is driving strong liquidity in the market.”

The day’s trading began on a ceremonial note as Federal Minister for Planning Ahsan Iqbal rang the traditional gong to commence trading at the PSX.

During the event, Ahsan Iqbal highlighted the government’s commitment to economic stability and long-term growth. “Crossing the 100,000 mark in the 100-Index showcases Pakistan’s potential to the world,” he said.

“Inflation has dropped from 38% to below 5% in two years, and the stock market has soared from 30,000 to 100,000 points,” he noted, highlighting the PSX as one of the most successful markets globally.

A significant factor in today’s rally was Prime Minister Shehbaz Sharif's optimism regarding a potential reduction in the key policy rate by the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) in its upcoming meeting, which analysts believe will provide further impetus to the equity markets.

Addressing a federal cabinet session on Monday, expressed optimism about a further reduction in the SBP’s policy rate.

The premier highlighted the 4.9% inflation rate recorded in November — the lowest in six-and-a-half years — as a game-changer for the country’s economic landscape.

Inflation data released by the Pakistan Bureau of Statistics (PBS) showed a significant slowdown, beating forecasts of 5.8%-6.8%.

“It is beyond imagination,” said the Prime Minister, recalling inflation levels of 3.5% during the previous tenure of the Pakistan Muslim League-Nawaz (PML-N).

Analysts note that the cooling price pressures reflect a mix of improved monetary measures and stabilising economic fundamentals and view this as a clear signal of easing price pressures, which could prompt the SBP to cut interest rates further, creating a more conducive environment for equity markets.

“Stocks are bullish, led by scrips across the board as investors eye a big policy rate cut next week,” said Ahsan Mehanti, Managing Director and CEO of Arif Habib Commodities.

“Upbeat data on a $8.65 billion trade deficit, narrowing by 7.4%, and $13.69 billion exports, rising by 12.57% for July-November 2024 played a catalytic role in the record surge at PSX.”

The trade data released by the Pakistan Bureau of Statistics (PBS) further reinforced positive market sentiment. The country’s trade deficit narrowed by 7.39% during the first five months of the current fiscal year, standing at $8.651 billion compared to $9.341 billion during the same period last fiscal year.

Pakistan’s exports rose by 12.57%, reaching $13.69 billion, while imports increased by 3.90% to $22.342 billion during this period.

In November 2024, the trade deficit showed an even sharper improvement, narrowing by 18.60% year-on-year (YoY) to $1.589 billion compared to $1.952 billion in the same month last year.

Analysts view this as a positive indicator of improving economic fundamentals and sustainable trade policies, contributing to the bullish momentum at PSX.

Monday’s session set the tone for today’s rally, with the KSE-100 gaining 1,917.62 points to close at a record 103,274.94.

Sectors like banking, technology, and oil and gas exploration led the gains last, with banking stocks benefitting significantly from recent regulatory changes, such as the removal of the Minimum Deposit Rate (MDR) requirement for corporate deposits.

As the PSX continues to explore unprecedented territory, market analysts anticipate sustained growth, supported by consistent policy measures, stabilised external accounts, and reduced costs of doing business.