PSX Sees Record Decline, Recovers Later

December 22, 2024 Mahi Bukhari

KSE-100 Closes Down 4.2% WoW as Profit-Taking, Policy Changes Weigh

Introduction

The Pakistan Stock Exchange (PSX) experienced a rollercoaster week filled with highs and lows, influenced by profit-taking, policy changes, and economic indicators. This article delves into the events of the week, highlighting the significant fluctuations in the KSE-100 index and their implications.

PSX’s Turbulent Week

State Bank of Pakistan’s Rate Cut

H1: SBP’s Policy Rate Cut Sparks Optimism

On Monday, the State Bank of Pakistan (SBP) announced a 200 basis points (bps) reduction in its policy rate, bringing it down to 13%. This move was anticipated by investors, leading to a surge in the KSE-100 index by 1,867 points. The rate cut was fueled by low inflation and a decrease in short-term government bond yields to 11.99%, generating bullish sentiment across various sectors.

H2: Initial Rally and Investor Optimism

Stocks rallied as investors welcomed the rate cut, anticipating it would boost economic activity and corporate profitability. The initial reaction was overwhelmingly positive, with significant gains across multiple sectors.

Mid-Week Market Correction

H1: Profit-Taking and Mutual Fund Redemptions

H2: Bearish Session Amid Volatility

However, the optimism was short-lived. By mid-week, the market faced a sharp correction. On Tuesday, the KSE-100 index saw a decline of 1,309 points amid volatility and policy concerns. The bearish session was marked by significant swings, reflecting the market’s uncertain sentiment.

H2: Unprecedented Crash on Wednesday

Wednesday witnessed an unprecedented crash as the KSE-100 plummeted by 3,790 points, the biggest single-day drop in history. This dramatic plunge was triggered by massive sell-offs across key sectors, driven by mutual fund redemptions, year-end profit-taking, and concerns over stringent tax policies.

Further Declines and a Strong Comeback

H1: Continued Selling and Market Correction

H2: Ruthless Sell-Off and Market Spiral

The market experienced further massive selling on Thursday, with equities spiraling into a correction phase. Over 4,700 points were wiped off due to relentless profit-taking and tax policy concerns, marking a day of ruthless sell-off.

H2: Market Recovery on Friday

Despite the week’s turmoil, the PSX made a strong comeback on Friday. Investors showed renewed confidence in the market’s resilience, pushing the KSE-100 index up by 3,238 points to close at 109,513. This recovery was bolstered by the government’s deliberations on the privatisation of state-owned enterprises (SOEs), resolution of independent power producers’ (IPPs) capacity payment issues, surging exports, rising foreign exchange reserves, and rupee stability.

Weekly Performance Overview

Market Drop and Recovery

H1: Week-on-Week Decline

Overall, the market dropped by 4,789 points, or 4.19% week-on-week (WoW), closing at 109,513. The week commenced positively with the SBP’s rate cut announcement and the country reporting its highest current account surplus in a decade, amounting to $729 million for November 2024, a notable turnaround from the $148 million deficit in November 2023.

H2: Historic Single-Day Declines

However, the latter part of the week saw historic single-day declines, primarily driven by mutual fund redemptions and year-end profit-taking by institutional investors. Despite these significant downturns, the market showed signs of recovery by the week’s end.

Sectoral Performance and Investor Behavior

H1: Sector-Wise Contributions

H2: Negative Contributions

Negative contributions came from the oil and gas exploration sector (1,305 points), fertiliser (1,119 points), cement (798 points), commercial banks (446 points), and technology & communication (252 points).

H2: Positive Contributions

On the other hand, sectors such as oil marketing companies (113 points), cable & electrical goods (72 points), and power (57 points) contributed positively.

H2: Foreign and Local Investor Activity

Foreign investors continued selling during the week, amounting to $11.6 million compared to net selling of $0.9 million the previous week. Major selling was witnessed in exploration and production companies ($5.5 million), followed by banks ($4.3 million). Locally, buying was reported by individuals ($25.8 million) and banks/DFIs ($10.5 million).

Market Metrics and Economic Indicators

H1: Trading Volumes and Values

Average daily volumes arrived at 1,192 million shares, down 19.1% WoW, while average traded value settled at $218 million, up 10.2%.

H2: Pakistani Rupee and Reserves

At the week’s close, the Pakistani rupee stood at 278.42 against the US dollar, reflecting a modest depreciation of 0.08% WoW. Meanwhile, the SBP’s reserves increased by $31 million to $12.1 billion.

FAQs

Q1: What caused the initial surge in the KSE-100 index?

The initial surge was caused by investor optimism following the SBP’s announcement of a 200 basis points reduction in its policy rate to 13%, coupled with low inflation and a decrease in short-term government bond yields.

Q2: What led to the unprecedented crash on Wednesday?

The unprecedented crash was driven by massive sell-offs across key sectors, mutual fund redemptions, year-end profit-taking, and concerns over stringent tax policies.

Q3: How did the market recover on Friday?

The market recovered on Friday due to renewed investor confidence in market resilience, government deliberations on the privatisation of SOEs, resolution of IPPs’ capacity payment issues, surging exports, rising foreign exchange reserves, and rupee stability.

Q4: What were the major sectoral contributions to the market’s performance?

Negative contributions came from the oil and gas exploration, fertiliser, cement, commercial banks, and technology & communication sectors. Positive contributions were seen in oil marketing companies, cable & electrical goods, and power sectors.

Q5: How did foreign and local investors behave during the week?

Foreign investors continued selling, amounting to $11.6 million, while local investors, including individuals and banks/DFIs, reported significant buying.

Conclusion

The Pakistan Stock Exchange (PSX) experienced a tumultuous week marked by significant highs and lows. The initial optimism following the SBP’s rate cut was quickly overshadowed by mid-week corrections and an unprecedented crash. Despite these challenges, the market showed resilience, recovering strongly by the week’s end. This week’s events underscore the volatile nature of the stock market and the impact of policy changes and economic indicators on investor sentiment.