Geopolitical easing, IMF disbursement may boost stocks sentiment

KARACHI: Stocks closed lower during the outgoing week amid geopolitical tensions. Some recovery is expected in the next week following the IMF’s approval of funds and the de-escalation of geopolitical tensions.

According to brokerage Arif Habib Ltd, market participants are expected to keep a close watch on geopolitical developments, with hopes that de-escalation between Pakistan and India could help restore positive sentiment. Additionally, the anticipated disbursement from the IMF following its executive board meeting is likely to uplift market mood.

The Pakistan Stock Exchange (PSX) endured a turbulent week, with the KSE-100 index shedding 6,939 points (down 6.1 per cent week-on-week) to close at 107,175 points, driven largely by heightened cross-border tensions with India and broad-based selling across key sectors.

According to Muhammad Waqas Ghani, analyst at JS Research, investor sentiment deteriorated sharply midweek amid reports of Indian drone strikes on major Pakistani cities, including Karachi and Lahore. This followed Pakistan’s downing of Indian aircraft, which triggered the KSE-100’s second-largest intraday decline of 7.6 per cent on Thursday, causing a temporary trading halt. However, a retaliatory response from Pakistani forces, which reportedly downed 77 drones, helped ease escalation fears by Friday, enabling a partial market recovery with a 3,648-point rebound.

Nabeel Haroon of Topline Securities noted that individuals and mutual funds, primarily facing redemptions, were the main net sellers, while local institutional investors such as banks, companies, and insurance firms stepped in to absorb the selling pressure.

Sector-wise, the major drag came from banks (-1,637 points), exploration & production (-905 points), cement (-738 points), technology (-508 points), and pharmaceuticals (-436 points). On the other hand, the sugar sector contributed a meagre 7 points in gains. Major individual laggards included UBL (-617 points), LUCK (-435 points), HUBC (-339 points), OGDC (-338 points), and Mari (-321 points), while Nestle (+16 points), JDWS (+7 points), and IBFL (+3 points) were among the rare gainers.

Foreign investors turned net buyers, with inflows totalling $1.52 million, reversing the prior week’s net selling of $6.79 million. Foreign interest was mainly seen in the cement sector ($4.86 million) and oil marketing companies ($1.96 million). Locally, mutual funds and individual investors sold $26.39 million and $11.27 million worth of equities, respectively.

Average daily trading volumes jumped 20 per cent week-on-week to 508 million shares, while the average value traded rose marginally by 0.3 per cent to $98 million (equivalent to Rs27.6 billion).

On the economic front, the State Bank of Pakistan (SBP) on Monday slashed its policy rate by 100 basis points to 11 per cent, marking a cumulative reduction of 1,100 basis points from its peak of 22 per cent. Following this, Kibor rates fell by 64 to 91 basis points (bps) across various tenors, and secondary market yields also saw a downward adjustment.

Meanwhile, SBP reserves increased by $118 million week-on-week to reach $10.3 billion. April 2025 remittances surged 13 per cent year-on-year to $3.2 billion, while the budget deficit widened to Rs2,970 billion (2.4 per cent of GDP) over the first nine months of FY25. Other key developments included Pakistan’s launch of Green Sukuk aimed at raising Rs20-30 billion for sustainable projects, a 32 per cent year-on-year jump in oil sales in April, FFC increasing its stake in Agritech to 37.36 per cent, and the government’s approval of an integrated energy policy targeting procurement of 7,000MW through competitive pricing.

Despite the volatility, some analysts remain cautiously optimistic. With monetary easing underway, foreign interest rebounding, and the potential IMF inflow on the horizon, market direction next week will largely hinge on how geopolitical tensions evolve.