PSX Surges on Optimism Over Rate Cut and Foreign Buying

The Pakistan Stock Exchange (PSX) continued its upward momentum on Friday, buoyed by expectations of a rate cut in the upcoming Monetary Policy Committee (MPC) meeting and increased foreign interest, particularly in the cement sector.

The benchmark KSE-100 Index gained 1,741.26 points, or 1.53%, reaching an intraday high of 115,779.05 before closing near its peak. The market’s strong performance reflected growing investor confidence, with early trading lows of 114,383.16 quickly reversing.

Key Drivers of Market Sentiment

Ahfaz Mustafa, CEO of Ismail Iqbal Securities, highlighted several factors fueling the rally:

• Rate Cut Expectations: A decline in Treasury bill (T-bill) yields by 20-41 basis points in Wednesday’s auction strengthened hopes of a 100-basis-point policy rate cut.
• Foreign Buying: Increased interest from foreign investors, particularly in the cement sector, added momentum to the market.
• Loan Inflows: The confirmation of a $1 billion loan agreement with Middle Eastern institutions and the UAE’s rollover of $2 billion deposits bolstered fiscal stability.
• Corporate Earnings Optimism: Ongoing result season encouraged buying activity, with investors anticipating dividend announcements.

Macroeconomic Highlights

• Inflation Trends: January’s Consumer Price Index (CPI) is projected to fall to 2.8%, the lowest since November 2015, due to a high base effect. The average inflation for the first seven months of FY25 stands at 6.7%, a significant drop from the previous year’s 28.7%.
• Foreign Reserves: Despite a $276 million decline in State Bank reserves to $11.449 billion due to debt repayments, the reserves remain sufficient for over two months of imports. Fiscal pressure eased with the UAE’s deposit rollover and new short-term loans from Middle Eastern banks.
• World Bank Partnership: Prime Minister Shehbaz Sharif welcomed the World Bank’s Country Partnership Framework for FY26-FY35, describing it as a “timely intervention” to address Pakistan’s economic challenges.

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Market Performance Overview

On Thursday, the PSX had already shown signs of recovery, with the KSE-100 Index gaining 594 points to close at 114,037.79. Friday’s rally built on this momentum, driven by optimism over further monetary easing.

The central bank’s Monetary Policy Committee meeting, scheduled for Monday, January 27, remains the key focus for investors. State Bank of Pakistan Governor Jameel Ahmad is set to announce the policy decision later that day.

Outlook

Market participants are optimistic about a rate cut, supported by falling inflation, easing yields, and positive developments in fiscal inflows. With the government securing short-term loans and the World Bank’s framework in place, investor sentiment remains strong, providing a solid foundation for further recovery in the capital market.

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