Benchmark KSE-100 index fell below 42,000-barrier during intra-day.
Analyst says interest rates at 16% is negative for corporate profitability.
KARACHI: The State Bank of Pakistan‘s unexpected increase in the interest rate shook investors’ confidence on the first day of the week, as the stock market took a hit with the benchmark KSE-100 index losing more than 850 points on Monday.
The Pakistan Stock Exchange’s (PSX) benchmark KSE-100 index had opened at 42,936.73, however, after losing 865.39 points, or -2.02% the index closed the session at 42,071.34 points.
Investors were concerned over the challenges faced by the beleaguered economy as cash-strapped Pakistan awaits funds from bilateral and multilateral partners.
The index remained on a downward trajectory, falling below the psychological barrier of 42,000 touching an intra-day low of 41,963.94 points.
In the morning, trading activity began on a negative note and the market fell steadily till midday when it touched its lowest mark for the day. Later, slight buying helped the bourse recoup some losses.
Analyst Samiullah Tariq laid blame on SBP’s decision to increase the interest rate as a key factor for the drop in the KSE-100 index.
“[The] market wasn’t expecting a rate hike. That’s why it was reacting,” the head of research at Pakistan-Kuwait Investment Company told Geo.tv.
Capital market expert Saad Ali also blamed the “surprise interest rate hike” for the drop, adding that investors may be expecting more hikes given the inflation outlook.
“Interest rates at 16% or higher is significantly negative for growth and corporate profitability,” Ali told Geo.tv.
At the time the decision was announced by SBP, the markets had closed, which is why the KSE-100 index today went in the red at the opening.
Shares of 350 companies were traded during the session. At the close of trading, 47 scrips closed in the green, 294 in the red, and nine remained unchanged.
Overall trading volumes declined to 244.35 million shares compared with Friday’s tally of 177.29 million. The value of shares traded during the day was Rs6.97 billion.
K-Electric was the volume leader with 29.01 million shares traded, losing Rs0.17 to close at Rs2.60. It was followed by WorldCall Telecom with 22.51 million shares traded, gaining Rs0.06 to close at Rs1.36 and Dewan Farooqui Motors with 13.78 million shares gaining Rs0.06 to close at Rs11.87.
SBP hikes interest rate to 16% to curtail inflation
On Friday, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) Friday raised the key policy rate by 100 basis points to 16% — the highest since 1999.
The central bank, in a statement, issued after the meeting said that the decision reflects the MPC’s view that inflationary pressures have proven to be stronger and more persistent than expected.
“This decision is aimed at ensuring that elevated inflation does not become entrenched and that risks to financial stability are contained, thus paving the way for higher growth on a more sustainable basis,” the MPC said.
The SBP noted that amid the ongoing economic slowdown, inflation is increasingly being driven by persistent global and domestic supply shocks that are raising costs.
As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.
The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.
Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.
Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.
In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).
The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.
The visiting International Monetary Fund (IMF) delegation is scheduled to meet with provincial government leaders today to examine progress in implementing a tax on agricultural income of up to 45% and discuss the execution of other fiscal policies.
The agricultural income tax was to go into effect on January 1, 2025, after the provincial governments were given until October 31 to pass the necessary legislation. Nevertheless, the deadline was missed by every single province.
Rumor has it that neither Sindh nor Balochistan have moved forward with the tax on agricultural income bill, despite approval from the Punjab government and a draft being developed in Khyber Pakhtunkhwa.
All four provinces have signed the National Fiscal Pact as per the conditions set by the IMF. The reason(s) for the delays will be explained to the IMF delegation.
Federal spending on things like healthcare, social security, and regional infrastructure development is expected to be transferred to the provinces under the IMF agreement, according to sources from the Ministry of Finance. Provincial governments have been singled out by the IMF delegation as key players in tax and economic reform efforts.
Reviewed Here: FBR Excludes Mini-Budget and GST on Petrol from IMF Negotiations
The provincial budget surplus targets will also be briefed to the IMF delegation, according to the sources. The four provinces were supposed to achieve a total surplus of Rs342 billion in the first quarter, but they only managed to manage Rs182 billion. A large portion of the deficit was caused by the Rs160 billion budget deficit in Punjab.
The government’s pledge to retain the annual tax target of Rs12,970 billion was reaffirmed by the Federal Board of Revenue (FBR) on Wednesday, who also confirmed that no mini-budget will be implemented.
In line with continuing discussions with the IMF, FBR sources have also said that petroleum goods will not be subject to the General Sales Tax (GST).
According to sources, the International Monetary Fund has voiced its approval of Pakistan’s recent economic performance, highlighting the country’s improved fiscal policies, which have led to a 1.5% increase in the tax-to-GDP ratio, from 8.8% to 10.3%.
The inflation-affected nation is expected to encounter another increase in petrol prices, with recommendations indicating a rise of Rs. 2.58 per litre for petrol and Rs. 5.91 per litre for high-speed diesel.
Sources indicate that, if sanctioned, petrol prices will ascend to Rs. 250.96 per litre, whereas high-speed diesel will be priced at Rs. 261.05 per litre.
Sources indicated that the suggested increase is due to the elevated premium on petroleum products in the worldwide market and rising import expenses.
The premium on imported petroleum products has increased, leading the government to contemplate pricing modifications effective November 16, sources indicated.
On October 31, the federal government published the prices of petroleum products for the upcoming fortnight, increasing the prices of petrol and high-speed diesel.
A notification announced an increase in petrol price by Rs 1.35, raising it to Rs 248.38 a litre. The price of high-speed diesel was fixed at Rs 255.14 per litre after an increase of Rs 3.85.
Also read: Pakistan’s weekly inflation jumps to 15.02pc
Simultaneously, the costs of light diesel and kerosene oil were reduced. The statement states that kerosene oil is priced at Rs 148.5 per litre following a reduction of Rs 4.92.
The cost of light fuel was reduced by Rs 2.61 to Rs 147.51 per litre.
The rampant hike in the prices came at the time when the weekly inflation, measured by the Sensitive Price Indicator (SPI), witnessed an increase of 0.28 percent for the combined consumption groups during the week ended on October 17, the Pakistan Bureau of Statistics (PBS) reported.
According to the PBS data, the SPI for the week under review in the above-mentioned group was recorded at 319.79 points as compared to 318.91 points during the past week.
In comparison to the same week last year, the SPI for the combined consumption group during the reviewed week experienced a 15.02 percent increase.
The weekly SPI with the base year 2015-16 =100 covers 17 urban centres and 51 essential items for all expenditure groups.
Likewise, SPI for the lowest consumption group of up to Rs 17,732 witnessed increase of 0.27 percent and went up to 313.74 points from last week’s 312.91 points.