Shares at PSX rebound in intraday trade on interest rate cut
Shares at the Pakistan Stock Exchange (PSX) witnessed a rebound by as many as 900 points on Tuesday as investors gained confidence from yesterday’s “unexpected” reduction in the interest rate.
The benchmark KSE-100 index increased by 990.87 points, or 0.87 per cent, to stand at 115,093.10 from the last close of 114,102.23 at 10:03am.
The State Bank of Pakistan’s decision to slash the interest rate by 100 basis points to 11 per cent defied analysts’ expectations that ongoing tensions with India might keep the central bank cautious and lead to no change in the interest rate.
Awais Ashraf, research director at AKD Securities, said the rate cut “provided much-needed impetus to the stock market where investor confidence is deterred by India-Pakistan tensions”.
In the past few days, panicky investors have continued to reduce their holdings as Pakistan has expressed a heightened possibility of a military action by India in the wake of the latter’s allegations regarding a deadly attack in occupied Kashmir.
The April 22 attack in Pahalgam killed 26 people, mostly tourists, in one of the deadliest assaults since 2000. India, without investigation or evidence, implied “cross-border linkages” of the attackers. Pakistan has firmly rejected the claim and called for a neutral probe.
However, Ashraf noted that the “likelihood of a full-scale war between Pakistan and India remains low, constrained by the nuclear deterrence factor”.
“We believe, escalation at a wider scale would have severe consequences for both nations, particularly given their dependence on external financing and exposure to short-term external liabilities,” he added.
Samiullah Tariq, head of research at Pak Kuwait Investment Company Ltd, also attributed the gains in shares today to the monetary policy, noting that the SBP rate cut was “higher than market expectations”.
Topline Securities Ltd had observed yesterday that the benchmark index was volatile, falling by 1,036 points in early trading. However, it made a strong recovery in the second half, mainly supported by the cement sector, as investors expected a possible rate cut in the monetary policy later in the day.
Also on Monday, international rating agency Moody’s warned that sustained India-Pakistan tensions could negatively affect Pakistan’s growth.
It also said that escalating tensions could cause a setback to nascent macroeconomic stability and also disrupt Pakistan’s access to foreign funding flows.
On the other hand, Moody’s noted that macroeconomic conditions in India would remain stable. However, it did stress that higher defence spending could impact India’s “fiscal strength and slow its fiscal consolidation”.
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