Stocks likely to keep up momentum amid expected rate cut

KARACHI: Stocks increased sharply and remained the best-performing market based on USD returns during the outgoing week. The market is expected to continue the bullish momentum on the anticipated rate cut by the central bank next week.

“We anticipate the market to continue with the positive momentum in the coming week, on the anticipation of a rate cut in the upcoming monetary policy committee meeting on December 16,” said brokerage firm Arif Habib Ltd.

The market surged to a record high of 109,478 points, driven by improved inflation data, which dropped to 4.9 per cent (the lowest level since April 18). Saudi Arabia has also extended a $3 billion deposit with Pakistan for another year to support its economy, providing further momentum to the index.

The market closed at 109,054 points, up 7,697 points and 7.59 per cent week-on-week (the world’s best-performing market based on USD returns). Moreover, the KSE-100 witnessed the highest-ever average volumes of 1,683 million shares (up 72 per cent WoW) and an average traded value of $198 million (up 49 per cent WoW).

Foreigner selling continued this week (Dec 2–Dec 5), clocking in at $12.2 million compared to a net sell of $15.1 million last week. Major selling was witnessed in banks ($3.9 million) followed by fertiliser ($2.5 million). On the local front, buying was reported by funds ($39.6 million) followed by banks/DFIs ($8 million).

Sector-wise positive contributions came from fertiliser (1,748 points), commercial banks (1,434 points), oil & gas exploration companies (1,148 points), cement (716 points) and power generation (405 points). Scrip-wise positive contributors were MARI (866 points), Engro (626 points), UBL (570 points), FFC (506 points) and MEBL (402 points).

The sector that contributed negatively was leasing companies (0.01 points). Scrip-wise negative contributions came from HBL (131 points), JVDC (20 points), EFUG (19 points), OGDC (10 points), and AKBL (3 points).

Analyst Nabeel Haroon at Topline Securities said the gain can be attributed to persistent buying by mutual funds on account of more allocation towards equity on the backdrop of declining yields on fixed-income securities, as inflation numbers continue to decline.

Muhammad Waqas Ghani, deputy head at JS Research, said the week started with inflation data for Nov-24 which clocked in at 4.9 per cent YoY, marking the lowest CPI reading in 6.5 years. This decline is mainly due to the base effect from last year’s elevated inflation. Although headline inflation increased 50bps MoM, the overall YoY trend remains on a downward path. The average inflation rate for 5MFY25 is 7.9 per cent, a notable reduction compared to the 28.6 per cent average recorded in 5MFY24.

Moreover, trade data released by the PBS revealed a 7.4 per cent YoY reduction in the trade deficit during the first five months of the current fiscal year, which stood at $8.65 billion, compared to $9.3 billion during the same period last year.

Banking sector stocks gained momentum as banks continued to work towards meeting ADR targets, the latest data showed a sharp rise in the banking sector’s gross ADR as it reached a 17-month high at 47 per cent.

In other news, for the fortnight, the government raised the price of petrol and diesel by Rs3.7 per litre and Rs3.3 per litre, respectively.

Also, Saudi Arabia agreed to extend the $3 billion deposit in the SBP for another year, offering vital support to Pakistan’s forex reserves. Pakistan has converted seven out of the 37 MoUs signed with Saudi Arabia into formal contracts worth $560 million.

According to the latest data, SBP reserves rose $620 million after ADB inflow, reaching $12 billion, the highest in 2.7 years. During the week, the PSX held an auction of Ijarah Sukuk bonds in which the government raised Rs353 billion against a target of Rs500 billion.