Stocks set a new record amid growing hope for interest rate cuts
Business
KSE-100 overcomes 72,000 hurdle by gaining nearly 1pc
- Energy-related entities as well as commercial banks, telecommunication and technology companies, and cement manufacturers performed well
KARACHI (Web Desk) – The benchmark KSE-100 Index set a new milestone by crossing the 72,000 for the first time in its history on Wednesday as the market remained bullish amid the rising expectations of rate cuts, foreign investment and progress on economic reforms, including privatisation of lossmaking state-owned enterprises (SOEs).
At one point, the KSE-100 Index had surged by over 1.45 per cent, or 1,055 points, to 72,414.32 as the Pakistan Stock Exchange continued seeing a buying spree in companies ranging from those related to energy and cement to commercial banks, telecommunication and technology, food and personnel care, and transport.
However, it settled at 72,051.89 after a gain of 692.49 points, or 0.97 per cent, when trading was closed for the day.
Earlier on Monday, Finance Minister Muhammad Aurangzeb had expressed his confidence that the country’s foreign reserves would touch $10 billion in June and a new deal with the International Monetary Fund (IMF) was expected by late June or early July.
At the same time, he had remarked that there could not be a ‘Plan B’ when a country entered into an IMF programme – meaning that Islamabad won’t backtrack on issues like broader economic reforms and privatisation.
On Wednesday, PIBTL remained the volume leader with the trading of more than 54 million shares followed by K-Electric [over 40 million] as institutional buying was giving a boost to the market that has been witnessing an increase in market capitalisation after years of undervalued major stocks.
INFLATION AND INTEREST RATES
Amid a consistent trend of improved economic indicators, Pakistan recorded a current account surplus of $619 million in March 2024 against $98 million recorded in the previous month.
With Pakistan being an imports-oriented economy, the massive current account surplus means a strong rupee which in turn will lead to a decrease in inflation to expressed in April’s consumer price index (CPI), thus raising the prospects of interest rate cuts soon.
The State Bank of Pakistan’s Monetary Policy Committee will meet next week on Monday (April 29) to review the interest rates after the country witnessed a continued decline in CPI during the last three months.
Hence, even if the central bank maintains the key policy rates at 22pc, the market is expecting that the central bank will certainly start the rate cut cycle in June – much-awaited move as higher borrowing rates have crippled the economy.
HIGH BORROWING COST BENEFICIARIES
Rising share prices of commercial banks is a constant feature of the stock market boom, which is main triggered by a massive domestic borrowing by the government, a trend started by the PTI government and sustained by the caretaker setup.
With the government repaying these loans at a record high interest rates, it is natural for the commercial banks to perform well despite the fact that the businesses have been avoiding borrowing money for expanding the existing ones or setting up new ones.
Read more: Govt bonds are borrowing instruments. High interest rates means more deficit
Same is the case with government bonds that have been attracting foreign investors who never miss an opportunity to benefit from the higher yields. Pakistan has been witnessing this practice after 2018 which resulted in budget deficit widening at an alarming rate.
