The capital market faced a sharp downturn on Monday, driven by disappointing corporate earnings, rising political uncertainty, and concerns over monetary policy ahead of the central bank’s announcement.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 Index closed at 113,520.32, marking a decline of 1,360.16 points or -1.18% from the previous session’s close of 114,880.48.
“The decline is partly due to market pricing in a lower than 100bps interest rate cut in today’s Monetary Policy Committee (MPC) meeting, and weak result from a major large-cap and widely held stock, MARI,” said Muhammad Saad Ali, Director of Research at Intermarket Securities Ltd.
He also attributed the decline to negative reactions following the announcement of a gas tariff increase for captive power plants.
Later in the day, the SBP cut its key policy rate by 100 basis points to 12% on Monday, the governor told reporters, for a sixth straight reduction since June as the country attempts to revive business and economic sentiment amid easing inflation.
Consumer inflation rate slowed to an over 6-1/2-year low of 4.1% in December, largely due to a high year-ago base. That was below the government’s forecast and significantly lower than a multi-decade high of around 40% in May 2023.
The central bank has been reducing interest rates since June 2024, slashing a total of 1,000 basis points from the record high of 22%.
This marks one of the most aggressive rate-cutting campaigns among emerging markets, surpassing the 625 basis points cut during the COVID-19 pandemic in 2020.
Uncertainty surrounding the political landscape continues to cloud investor sentiment as negotiations between the government and PTI have hit an impasse, with conflicting statements about their future.
PTI Chairman Barrister Gohar Ali Khan announced that talks were on hold due to the government’s lack of cooperation and delays in forming a judicial commission to probe violent incidents in May and November 2023.
Commenting on the bearish outlook, Managing Director and CEO of Arif Habib Commodities Ahsan Mehanti said, “Stocks are bearish amid a rout in global equities and weak global crude oil prices.”
“Uncertainty over the outcome of government-PTI talks and concerns over the Tax Laws Amendment Bill 2024 limiting non-filers ability to make stock purchases have also played a catalytic role in bearish activity,” he added.
The international oil price witnessed a 3% week-on-week decline amid concerns over the US President Donald Trump’s plan to boost US oil production, further dampening investor sentiment.
Pakistan recently agreed to a $1 billion loan from two Middle Eastern banks at interest rates of 6-7%, raising concerns about the country’s rising debt servicing burden. Meanwhile, international oil prices declined by 3% week-on-week, partly due to concerns over US production plans.
Textile exports provided some relief, rising 9.7% year-on-year in the first half of FY25, amounting to $9.1 billion. Power generation also increased by 1% in December 2024, offering a marginal boost to the economic outlook. However, SBP’s foreign exchange reserves declined by $276 million last week, settling at $11.5 billion, sufficient to cover over two months of imports.