PSX Reaches Record High with 18-Year Peak

December 4, 2024 Mahi Bukhari

The Pakistan Stock Exchange (PSX) has seen remarkable growth recently, with the KSE-100 index soaring to new heights on December 3, 2024. The market has been experiencing an unprecedented surge driven by positive economic signals, including a falling inflation rate, lower trade deficit, and strong export growth. The rise in market value has led to one of the highest traded values in the last 18 years.

PSX Reaches Record Trading Value of Rs57 Billion

On Tuesday, the PSX reached a monumental Rs57 billion in trading value, a figure that has not been witnessed in the last 18 years. The KSE-100 index saw an intra-day surge of 1,406 points, briefly touching the extraordinary high of 104,681 points, before stabilizing at 104,559 points—an increase of 1,284 points from the previous day.

The record surge comes amid heightened investor optimism, which has been spurred by a variety of factors, including the anticipation of a potential rate cut in the upcoming monetary policy meeting. Inflation dropped to its lowest level in six years, while economic indicators like the falling trade deficit and growing export numbers fueled investor confidence.

Key Drivers of the Market Surge

Inflation Decline and Investor Optimism

The market rally was significantly influenced by the decline in inflation, which hit a six-year low. This development has led investors to believe that the State Bank of Pakistan (SBP) might cut interest rates in its upcoming policy meeting. Lower interest rates are generally seen as positive for equities, as they lead to cheaper borrowing costs for businesses and consumers, potentially boosting corporate profits.

Positive Economic Indicators

In addition to inflation, other positive economic indicators have played a crucial role in boosting market sentiment. The trade deficit for the month of November 2024 contracted by 19% year-on-year, standing at $1.59 billion. This improvement in trade balances is largely due to the rise in exports and a decline in imports, which has helped stabilize the Pakistani Rupee (PKR).

Exports grew by 12.57%, reaching $13.69 billion from July to November 2024, further enhancing investor optimism. The improvements in the trade balance and export growth are seen as key factors that could lead to a stronger economic outlook in the coming months.

Rupee Stability and Trade Deficit Reduction

The rupee has remained relatively stable against major currencies, providing further confidence to investors. This stability, coupled with the decline in the trade deficit, has fostered expectations of a potential current account surplus, which has been a key catalyst for the market’s record-breaking performance.

Heavyweights Lead the Bullish Momentum

Top Stocks Driving the Surge

The surge in the PSX was not limited to small-cap stocks. Heavyweights such as Engro Corporation, Mari Petroleum, Pakistan Oilfields, Fauji Fertilizer Company, and Dawood Hercules Corporation collectively contributed a significant 658 points to the KSE-100 index. These companies have been major players in Pakistan’s stock market for years, and their strong performance has been key to the broader market’s success.

Engro Corporation, for instance, saw a 6.14% increase in its share price, while Mari Petroleum and Pakistan Oilfields saw gains of 4.21% and 4.7%, respectively. These stocks, along with others, were central to the positive movement in the market.

Notable Performers on the Stock Market

Some stocks saw particularly impressive growth, with Pak Elektron gaining 10%, Airlink Communication up by 8.95%, and Pakistan Refinery seeing an increase of 9.73%. Sui Southern Gas Company also saw a 9.69% rise in its share price. These gains contributed to the overall bullish momentum in the market.

Foreign Investor Activity

Despite the strong domestic performance, foreign investors were net sellers during the day, offloading shares worth Rs652 million. This trend of foreign selling could be a result of global market conditions, as international investors often pull back during times of uncertainty. However, the continued domestic growth has helped offset the impact of foreign selling.

PSX’s Path Ahead: Will the Bullish Momentum Continue?

Analysts Expect Further Gains

Despite the PSX entering what some analysts consider an “overstretched” territory, the bullish momentum remains very strong. According to JS Global analyst Mubashir Anis Naviwala, investor optimism regarding stronger earnings growth and continued monetary easing is likely to sustain the upward trend in the market. The expectations of a further rate cut by the SBP, along with the recent positive economic data, provide a favorable outlook for the PSX.

Topline Securities also indicated that the market could continue its rise, with further gains expected as long as key economic indicators continue to improve. Analysts suggest that support is expected at the 100,000-point level, and the market may continue to rally toward even higher targets in the near future.

Potential Risks to Watch

However, market analysts have cautioned that investors should remain vigilant. The surge in the PSX has been remarkable, but there are potential risks to consider. The ongoing foreign selling, as well as global market conditions, could impact the local market. Furthermore, any unforeseen disruptions in the economic or political landscape could lead to a correction in the market.

FAQs

1. What caused the recent surge in the Pakistan Stock Exchange (PSX)? The surge in the PSX is attributed to factors such as falling inflation, the expectation of a rate cut by the State Bank of Pakistan, a decrease in the trade deficit, and a boost in exports. These factors combined have led to heightened investor optimism.

2. Which stocks contributed the most to the PSX surge? Heavyweights like Engro Corporation, Mari Petroleum, Pakistan Oilfields, Fauji Fertilizer Company, and Dawood Hercules Corporation played a significant role in the rally, contributing 658 points to the KSE-100 index.

3. How has the trade deficit affected the market? The reduction in Pakistan’s trade deficit by 19% year-on-year has positively impacted market sentiment, as it suggests an improving economic outlook and increased investor confidence.

4. What is the outlook for the PSX in the near future? Analysts predict that the PSX will continue its upward trajectory, with potential gains towards 105,000 points. However, caution is advised due to foreign selling and possible global market volatility.

5. Why did foreign investors sell shares during the market rally? Foreign investors sold shares worth Rs652 million due to global market conditions and broader uncertainty. However, the domestic growth in the PSX has offset this impact.

Conclusion

The Pakistan Stock Exchange’s performance on December 3, 2024, highlights a period of significant growth fueled by positive economic developments, including a decrease in inflation, reduced trade deficit, and stable rupee conditions. The market’s bullish momentum is likely to continue, with analysts predicting further gains, but investors should be aware of the risks posed by foreign selling and global uncertainties.