Easing inflation, profit-taking see PSX make modest gains

The stock market witnessed a mixed session on Thursday, teetering between surging investor enthusiasm and strategic profit-taking.

A record-breaking intraday high highlighted strong investor confidence, driven by easing inflation, improved liquidity, and positive macroeconomic indicators. Additionally, December’s Consumer Price Index (CPI) reading of 4.1% year-on-year, the lowest in 6.5 years, reinforced hopes for sustained economic recovery.

The Pakistan Stock Exchange's (PSX) benchmark KSE-100 Index closed at 117,119.65, marking a modest gain of 111.57 points or 0.1% from the previous session's close of 117,008.08. The market reached a new intraday record high of 118,367.81 before fluctuating to a low of 116,857.61.

"CPI reading came at a 6.5-year (80-month) low at 4.1%, with improved liquidity (fresh plus conversions from fixed-income assets)," said Sana Tawfik, Head of Research at Arif Habib Limited, summarising the key drivers behind market activity.

At a federal cabinet meeting on Wednesday, Prime Minister Shehbaz Sharif expressed satisfaction over the macroeconomic stability achieved so far but emphasised the need to shift focus toward growth. “Now we have to take off in the export sector, as there is no other option for economic development,” he said.

Shehbaz underscored the importance of export-led growth while noting that the Federal Board of Revenue (FBR) must undertake stronger enforcement measures to meet revenue targets outlined under the International Monetary Fund (IMF) conditions.

The prime minister also highlighted the recent increase in revenue receipts, which reached a 25-year high. However, he acknowledged a significant gap between the collected revenue and the ambitious targets set by the IMF.

Inflation data has also provided a boost to investor sentiment. The Consumer Price Index (CPI) fell to 4.1% year-on-year in December 2024, down from 4.9% in November and a staggering 29.7% in December 2023.

While the year-on-year drop signals macroeconomic stability, month-on-month inflation rose slightly by 0.1%, pointing to underlying cost pressures.

PM Shehbaz unveiled "Uraan Pakistan," a five-year National Economic Transformation plan, on Tuesday. The initiative aims to attract $10 billion annually in foreign investment and stimulate local investments through sustainable export-led growth.

Anchored on the "5Es"—exports, e-Pakistan, environment, energy, equity, and empowerment—the plan targets a six percent GDP growth rate by 2028, the creation of one million jobs annually, and robust private-sector contributions.

On the trade front, Pakistan's trade deficit rose 35% year-on-year in December to $2.44 billion, the highest since April 2024. Imports surged to a 27-month high of $5.285 billion, while exports recorded a modest 0.67% year-on-year increase, standing at $2.84 billion.

Month-on-month, the trade deficit widened by 47%, reflecting a sharp rise in import activity.

The FBR reported collecting Rs5,623 billion in the first half of FY2024-25, though it fell short of the IMF target of Rs6,009 billion. Measures such as a 44% fixed tax on banking sector profits generated Rs72 billion in revenue, providing a partial cushion against the shortfall.

On Wednesday, the PSX posted a robust gain, with the KSE-100 Index surging 1,881.18 points, or 1.63%, to close at 117,008.08. Analysts attributed to fresh allocations and better-than-expected tax collection numbers, hinting that additional taxation measures might not be necessary.

The combination of a well-defined economic strategy, easing inflation, and improving investor confidence positions the PSX for sustained positive momentum.