PSX breaks records surpassing 113,000 points for first time on economic confidence

The capital market soared to a historic milestone on Thursday, with the KSE-100 Index surging past the unprecedented 113,000-point mark for the first time ever

Buoyed by positive macroeconomic indicators, rising investor optimism, and expectations of substantial monetary easing the index rocketed to heights.

The Pakistan Stock Exchange’s (PSX) benchmark index surged by 2,671.69 points, or 2.41%, to hit an intraday high of 113,481.9, marking another milestone in the market’s ongoing rally.

“Liquidity is a very important factor for the stock market. With successive rate cuts, investors have shifted from bonds to equities,” said Sana Tawfik, Head of Research at Arif Habib Limited.

“The IMF programme and other economic measures have also brought significant improvements in key indicators, including inflation and foreign exchange reserves,” she added.

Pakistan’s Current Account Deficit (CAD) recorded a sharp 79% year-on-year decline, narrowing to $217 million in the first two months of FY2025. August showed a surplus of $29 million, supported by strong remittance inflows and stable export earnings.

Exports are projected to reach $33 billion by the end of FY2025, driven by enhanced domestic production, exchange rate stability, and robust growth in major trading partner economies. Service exports, particularly in IT, are expected to climb from $3.2 billion in FY2024 to $4.2 billion in FY2025.

Remittances are forecasted to reach $33.5 billion in FY2025, aided by reduced global inflation and government initiatives promoting formal banking channels. The government has allocated Rs80 billion for transaction rebates and incentives to encourage remittance flows through legal channels, contributing to economic stability.

The government’s decision to reduce Treasury Bill (T-bill) yields by up to 100 basis points on Wednesday has further fueled expectations of monetary easing. The auction raised Rs1.256 trillion against a target of Rs1.2 trillion, with the highest bids for longer-tenor papers, signaling investor confidence in the economy.

The largest yield cut of 100 basis points was for three-month papers, reducing the rate to 11.99% from 12.99%. Analysts predict the State Bank of Pakistan (SBP) may cut the policy rate by up to 200 basis points at its December 16 meeting, reflecting declining inflation, which hit 4.9% in November, the lowest since April 2018.

The banking sector’s Advance-to-Deposit Ratio (ADR) improved to 47.8% as of November 29, 2024, from 44.3% in October, with banks working to meet the mandatory 50% threshold by December 31. Failure to comply could result in additional taxes on income from government securities.

Additionally, the government revised profit rates on National Savings Schemes (NSS), with the Savings Account rate dropping by 250 basis points to 13.5%. These changes are expected to redirect funds into equities, further fueling market activity.

Economic activity remains robust, highlighted by a 62% year-on-year increase in passenger car sales in November and a 50% rise during the first five months of FY2025. Additionally, the Asian Development Bank (ADB) approved $530 million in loans to modernise Pakistan's power distribution infrastructure and enhance social protection programs.

Saudi Arabia’s extension of a $3 billion deposit and trade agreements worth $560 million have strengthened foreign reserves and boosted investor sentiment, underscoring confidence in Pakistan's economic recovery.

The PSX’s rally reflects growing confidence in Pakistan’s economic stability, bolstered by declining inflation, robust remittance inflows, and improved liquidity.

As the SBP’s December 16 monetary policy meeting approaches, expectations of significant rate cuts are likely to sustain investor momentum, ensuring continued market growth.