Pakistan: SBP lowers interest rate by 100bps

After keeping the rates unchanged in March’s monetary policy, the State Bank of Pakistan (SBP) has cut the policy rate by 100bps to 11.0%. The policy rate has halved in less than a year, down from 22.0% in June 2024. Intermarket Securities believes the key reasons behind the rate cut are:

Headline CPI coming off to multi-decade low in April, with core inflation dipping to 8.0%YoY, resulting in an improved inflation outlook. 

Weak LSM readings feeding into anemic GDP growth of just 1.5%YoY in 1HFY25 (FY25 GDP growth is projected to be sluggish between 2.5% to 3.5%. The shortfall in tax collection has also widened.

Much talked about buildup in foreign exchange reserves to US$14 billion by June 2025, together with expected continued reserves buildup in FY26 even if the current account slips back into a modest deficit. 

Outlook for softer global growth, backed by recent IMF estimate downgrades and sharply lower oil prices.  

The brokerage house believes equities should find something to cheer after the rate cut, having suffered a difficult April, KSE-100 index shed 5.5% on Pakistan-India tensions. That said, given the pace of monetary easing in the previous twelve months, the brokerage house believes the SBP is likely to take a more cautious approach going forward.

With macroeconomic stabilization having been achieved, fiscal reforms remain important for lengthening the economic cycle. The coming Budget, expected in early June, will be a key checkpoint in this respect.

The brokerage house continues to remain positive on Pakistan equities. Its base-case KSE-100 Index target for end December 2025 is 130,000 points.

 

 

PSX witnesses subdued activities

Pakistan Stock Exchange (PSX) experienced a marginally subdued week, with authorities proposing amendments to tax bill including increased restrictions on non-tax filers, barring them from the purchase of securities, investment in mutual funds, properties and even suspending their bank accounts. National Assembly panel is currently reviewing the proposals.

Benchmark KSE-100 index declined by 392 points, down 0.3%WoW to close at 114,880 points on Friday, January 24, 2025. However, trading volumes grew as compared to last week, reaching 699 million shares, up 25%WoW.

Several important data points came in during the week, including a Current Account Surplus of US$582 million for December 2024, taking cumulative 1HFY25 balance to US$1.21 billion.

State Bank of Pakistan (SBP) raised PKR297 billion through T-Bills auction during the week, with 12-month yields dropping to 11.39%, down 41bps.

IMF revised Pakistan’s GDP growth forecast for 2025 to 3% and for 2026 to 4%, slightly downwards from previous projection.

On the external front, foreign exchange reserves held by SBP declined by US$276 million to US$11.5 billion. PKR weakened marginally against the greenback to close at PKR278.75 to a US$.

Other major news flow during the week included: 1) GoP agrees terms for US$1 billion loan with 2 Middle Eastern banks, 2) Saudi firm agrees to invest up to US$1 billion in Reko Diq project, 3) Foreigners withdraw US$38.5 million from T-Bills by January 10, 4) Pakistan to float US$200 million panda bonds in June, 5) World Bank to lend US$20 billion to Pakistan, 6) Petrol price increases, and 7) Urea sales increases by 58%YoY during CY24 to 6.6 million tons.

Fertilizer, Inv. Banks, and Textile weaving were amongst the top performing sectors, while E&P, Jute, & transport sectors were among the laggards.

Major net selling was recorded by Banks at US$14.1 million. Foreigners and companies absorbed most of the selling with a net buy of US$11 million.

Top performing scrips of the week were: FCCL, KTML, CNERGY, LOTCHEM, and MLCF, while laggards included: MARI, NRL, SAZEW, PGLC, and PIBTL.

According to Pakistan’s leading brokerage house, AKD Securities, PSX is expected to remain on positive trajectory, driven by an anticipated shift of funds from fixed income to equities amid falling fixed income yields.

The upcoming Monetary Policy Committee (MPC) meeting, scheduled on June 27, will remain a key focus.

Over the medium term, the KSE-100 index is anticipated to sustain its upward momentum throughout CY25, primarily driven by the strong profitability of fertilizer companies, higher sustainable ROEs of banks and improving cash flows of E&Ps and OMCs, benefitting from falling interest rates.

 

 

PSX benchmark index up 7.6%WoW

Pakistan Stock Exchange (PSX) continued its bullish momentum throughout the week, leading to a major increase in the benchmark index, registering its highest ever weekly point gains of 7,697 and market closed at a record high of 109,054 points, up 7.6%WoW on Friday, December 06, 2024.

The bullish momentum was fueled by November 2024 inflation recorded at 4.9%YoY, lowest in nearly six and half years, fueling expectations for continued monetary easing in the upcoming Monetary Policy Committee scheduled for December 16, 2024.

Major contributing sectors to this rally were commercial banks, followed by Fertilizer, and Oil & Gas Exploration. Interest in the banking sector continued to rise, with gross advances increasing by 21%YoY as of November 15, 2024, taking the ADR to 46.9%, with expectations of crossing the 50% threshold before the year-end to avoid ADR-based taxation.

Meanwhile, fertilizer sector advanced on ENGRO’s agreement to acquire the Jazz Tower business, coupled with the Lahore High Court’s approval of the FFC-FFBL merger.

Saudi Fund extends term of US$3 billion deposits for another year.

Trade deficit for November 2024 was reported at US$1.6 billion, down 19%YoY.

Total debt dropped by 1%MoM to PKR69 trillion in October 2024.

Foreign exchange reserves held by State Bank of Pakistan (SBP) increased by US$620 million, following a US$500 million loan disbursement from the Asian Development Bank (ADB), taking total reserves held by SBP to US$12.0 billion as of November 29, 2024.

Market participation increased by 21.5%WoW to 1.7 billion shares, as compared to 1.4 billion shares traded in the earlier week.

PKR remained stable against the greenback, closing the week at PKR278.01 to a US$.

Other major news flow during the week included: 1) Saudi crown prince accepted invitation to visit Pakistan, 2) Oil sales surged to 25-month high, 3) Cement dispatches increased 5.58%YoY, 4) FBR decided to put more curbs on FATA/PATA steel sector and 5) Prime Minister hinted towards cut in policy rate.

Vanaspati & Allied Products, Transport, Refinery, Cable & Electrical goods and Engineering were amongst the top performing sectors.

Major selling was recorded by Individuals, Insurance companies, and foreigners with a net sell of US$26.0 million, US$21.0 million, and US$14.2 million, respectively. Mutual funds and companies absorbed most of the selling with a net buy of US$44.0 million and US$10.7 million, respectively.

Top performing scrips of the week were: CNERGY, Airlink, PABC, NML, and PAEL, while laggards included: EFUG, JVDC, HBL, AKBL, and PSEL.

Continuation of monetary easing due to disinflationary environment and improving macroeconomic environment would make investment in equities more appealing, currently trading at P/E of 5.0x and DY of 10.2%.

Moving forward, upcoming MPC meeting would remain in investor’s focus, also keeping cyclical sector attractive.

Aforementioned factors, along with declining external financing requirement under the IMF program, would keep foreigners’ interest alive.

Top picks of AKD Securities include: OGDC, PPL, MCB, FFC, PSO, LUCK, MLCF, FCCL and INDU.