PSX Ends Week with Minor Gains Amidst Volatility

The Pakistan Stock Exchange (PSX) experienced notable volatility in the past week, with the KSE-100 index fluctuating between red and green zones before closing with a modest gain of nearly 200 points. This oscillation in the market was primarily driven by mixed investor sentiment influenced by political uncertainty, policy rate adjustments, global rating decisions, and improving economic indicators.

A key development came early in the week when the State Bank of Pakistan (SBP) announced a 100 basis points (bps) reduction in the policy rate, lowering it to 19.5%. This move was aimed at further reducing inflation and providing some relief to the economy. Additionally, the Pakistani rupee remained stable, and the central bank’s foreign currency reserves increased by $75 million, reaching $9.102 billion.

The KSE-100 index began the week on a positive note, surging nearly 800 points following the upgrade of Pakistan’s long-term foreign currency issuer default rating to “CCC+”. This upgrade was expected to stabilize the rupee and enhance foreign currency inflows. However, the positive momentum was short-lived. The market faced downward pressure the following day due to the policy rate cut and investor concerns over the affirmation of the “CCC+” rating by S&P Global, highlighting Pakistan’s reliance on foreign assistance amid ongoing political instability.

On Wednesday, the PSX dropped nearly 750 points as investor concerns escalated, further fueled by profit-booking and uncertainties surrounding the rollover of $15 billion worth of Chinese energy debt. The market saw a rebound on Friday, with the KSE-100 index rising about 500 points, driven by optimistic economic data and expectations of further reductions in the SBP policy rate.

For the week, the KSE-100 index gained 196 points, or 0.3%, closing at 78,226. JS Global analyst Shagufta Irshad noted that the market remained volatile due to selling pressure linked to political uncertainty. Average daily trading volumes increased by 6% week-on-week.

In other news, Fitch Ratings upgraded Pakistan’s long-term foreign currency issuer default rating to “CCC+” from “CCC”, while S&P Global maintained the “CCC+” rating for the long term and “C” for the short term. On the macroeconomic front, the Pakistan Bureau of Statistics reported a 33-month low Consumer Price Index (CPI) for July 2024 at 11.1%, and a reduction in the trade deficit to $1.9 billion, the lowest in five months.

The government also cut petrol and diesel prices by Rs6.2 per litre and Rs10.9 per litre, respectively, in the first fortnight of August, reflecting lower ex-refinery prices. The SBP’s foreign exchange reserves remained stable at $9.1 billion.

Stock-specific activity was boosted by strong Q2 earnings and dividend announcements for UBL and Fauji Fertiliser Company. Analysts highlighted that the market is awaiting the approval of a $7 billion IMF facility, expected this month, which could support Pakistan’s debt payments and stabilize market conditions.

Sector-wise, the week saw notable positive contributions from fertiliser (417 points), refinery (68 points), power (63 points), exploration and production (58 points), and pharmaceuticals (36 points). In contrast, sectors contributing negatively included cement (207 points), banks (135 points), technology (66 points), oil marketing companies (26 points), and textiles (21 points).

Foreign investors sold shares worth $2.2 million during the week, a reversal from the previous week’s net buying of $4.6 million.