- Stocks are in a volatile state as investors go bullish on index-heavy stocks.
- Analysts expect a cut of up to 400 basis points in the interest rate this year.
- Interest rate sensitive stocks, such as banks, technology companies and utilities, will remain in the spotlight.
Pakistani stocks on Tuesday continued their stellar rally, driven last week by bets on an extended tight monetary policy by the central bank, giving a boost to interest rate-sensitive sectors, traders said.
The Pakistan Stock Exchange (PSX) KSE-100 equity index closed at another record high of 85,663.97, up 753.68 points or 0.89%, after hitting an intraday high of 85,807 points.
Certain sectors, such as technology, real estate, financial services, utilities and consumer discretionary, tend to particularly benefit from interest rate cuts, allowing investors to capitalize on these dynamics during periods of economic change, analysts say.
Khurram Shehzad, CEO of Alpha Beta Core, said the timely approval of the International Monetary Fund (IMF) loan deal coupled with a steady decline in the inflation rate has raised hopes of further rate cut.
“Consumer price inflation is expected to fall below 6-6.5% in the coming months,” Shehzad said, adding that November will be a crucial month due to two key events. Internationally, the US presidential election will determine the course of the global economy, while at the domestic level, the central bank’s monetary policy meeting, which is expected to cut interest rates by at least 220 basis points, will adjust the country’s growth trajectory.
He said the Monetary Policy Committee will meet again in December and may cut interest rates by another 200 basis points, bringing the total cut to 400 basis points before the end of the year.
On Monday, stocks surpassed a record high of 84,900, driven by a massive rally in the energy sector and growing optimism about potential interest rate cuts. The index closed at an all-time high of 84,910.29 points, up 1,378.34 points, or 1.65%.
Investors have raised their bets on the scope of the State Bank of Pakistan (SBP) expanding its ongoing tight monetary policy as inflation has steadily declined over the past months, according to analysts.
Moreover, there are expectations of a rate cut of up to 400 basis points by December, as there is scope for easing.
The market is abuzz with speculation that the Federal Reserve may adjust interest rates downward even before its next scheduled meeting.
They added that the long-awaited start of the central bank’s interest rate cutting cycle has revived foreign interest in the country’s capital market.
CPI-based inflation fell to 6.9% y/y in September 2024, the lowest since January 2021, down from 9.6% in August, driven by a higher base effect, facilitating commodity and energy markets, and a stable currency, according to the Pakistan Bureau of Statistics ( PBS).
Last month, the State Bank of England’s Monetary Policy Committee cut its key interest rate by 200 basis points to 17.5% from 19.5%, citing a sharp decline in both headline and core inflation over the past two months.