The Pakistan Stock Exchange (PSX) reached a new historic high on Thursday, with the KSE-100 Index soaring past the 113,000-point mark for the first time ever.
Driven by positive macroeconomic indicators, rising investor confidence, and expectations of substantial monetary easing, the index surged by 2,381.21 points, or 2.15%, reaching an intraday peak of 113,191.42—setting a new record.
“Liquidity is crucial for the stock market. With consecutive rate cuts, investors have shifted from bonds to equities,” said Sana Tawfik, Head of Research at Arif Habib Limited. “The IMF programme and other economic measures have also led to significant improvements in key indicators like inflation and foreign exchange reserves,” she added.
Pakistan’s Current Account Deficit (CAD) saw a sharp 79% year-on-year decline, narrowing to $217 million in the first two months of FY2025, with August even showing a surplus of $29 million. This improvement was driven by strong remittance inflows and stable export earnings.
Exports are projected to reach $33 billion by the end of FY2025, bolstered by increased domestic production, exchange rate stability, and growth in key trading partner economies. Service exports, particularly in IT, are expected to rise from $3.2 billion in FY2024 to $4.2 billion in FY2025.
Remittances are forecast to increase to $33.5 billion in FY2025, supported by reduced global inflation and government incentives promoting formal banking channels. The government has allocated Rs80 billion for transaction rebates and incentives to encourage remittance flows, contributing to economic stability.
The government’s decision to cut Treasury Bill (T-bill) yields by up to 100 basis points on Wednesday has further fueled expectations of monetary easing. The auction raised Rs1.256 trillion against a target of Rs1.2 trillion, with the highest bids for longer-tenure papers, signaling investor confidence in the economy.
The largest yield cut of 100 basis points was applied to three-month papers, reducing the rate to 11.99% from 12.99%. Analysts predict the State Bank of Pakistan (SBP) could reduce the policy rate by up to 200 basis points during its December 16 meeting, reflecting a decline in inflation, which fell to 4.9% in November—the lowest since April 2018.
The banking sector’s Advance-to-Deposit Ratio (ADR) rose to 47.8% as of November 29, 2024, up from 44.3% in October, with banks aiming to meet the mandatory 50% threshold by December 31. Non-compliance could result in additional taxes on income from government securities.
The government also revised the profit rates on National Savings Schemes (NSS), with the Savings Account rate dropping by 250 basis points to 13.5%. These changes are expected to redirect funds into equities, further stimulating market activity.
Economic activity remains robust, with a 62% year-on-year increase in passenger car sales in November and a 50% rise in the first five months of FY2025. Additionally, the Asian Development Bank (ADB) approved $530 million in loans to modernize Pakistan’s power distribution infrastructure and improve social protection programs.
Saudi Arabia’s extension of a $3 billion deposit and trade agreements worth $560 million have strengthened foreign reserves and boosted investor sentiment, signaling confidence in Pakistan’s economic recovery.
The PSX’s ongoing rally reflects growing confidence in Pakistan’s economic stability, driven by declining inflation, strong remittance inflows, and improved liquidity.
As the SBP’s December 16 monetary policy meeting approaches, expectations of significant rate cuts are likely to sustain investor momentum, ensuring continued market growth.
