Stocks rally after rate hike in jittery week

The benchmark of representative shares of the stock market remained flattish at the beginning of the outgoing week owing to the investors' concerns about a major hike in the key interest rate by the central bank.

However, the index witnessed a strong momentum after the State Bank of Pakistan (SBP) announced the increase of only 100 basis points, Arif Habib Ltd said.

Moreover, the government made a bold call and announced it'd resume the International Monetary Fund (IMF) programme. It pledged to undertake tough measures to meet the IMF's preconditions, including a hike in gas and electricity tariffs and the imposition of additional taxes and a flood levy.

The government implemented during the outgoing week the market-determined exchange rate - one of the IMF's preconditions - that resulted in the rupee recording a historic low of 262.60 against the dollar.

In response, the IMF agreed to send a mission to Pakistan next week. Investors hailed these developments and a robust sentiment took the index above the level of 40,000 points.

Meanwhile, the SBP's foreign exchange reserves plummeted by $923 million and settled at $3.7 billion, lowest since February 2014.

The KSE-100 index closed at 40,451 points after gaining 2,043 points or 5.3pc from a week ago - highest weekly return since April 15, 2022.

Sector-wise, positive contributions came from banks (653 points), fertiliser (328 points), exploration and production (308 points) and cement (197 points). Sectors that contributed negatively were pharma (24 points) and auto parts (10 points).

Scrip-wise, positive contributors were Habib Bank Ltd (283 points), Engro Corporation Ltd (198 points), Pakistan Services Ltd (150 points), TRG Pakistan Ltd (139 points) and Oil and Gas Development Company Ltd (126 points). Negative contributions came from Systems Ltd (78 points), Indus Motor Company Ltd (14 points) and Highnoon Laboratories Ltd (14 points).

Foreign buying clocked in at $2.8m versus a net purchase of $4.9m a week ago. Major buying was witnessed in banks ($3m) and power ($0.6m). On the local front, selling was reported by insurance ($8.8m) and companies ($3.9m).

The average daily volume arrived at 217m shares, up 52pc week-on-week. The average daily value traded settled at $33.9m, up 56pc from a week ago. According to AKD Securities, developments on the IMF front are bound to invoke a short-term rally in stocks even though uncertainty will creep back in if the agreement takes long to conclude.

Inflation is expected to remain persistently high while another interest rate hike of a minimum 100 basis points is likely in 2022-23. "We retain our liking for the IT sector in the current backdrop along with exploration and production (sector), and advocate for a gradual accumulation in fundamental scrips with a longer-term focus," it added.

Chairman Federal Board of Revenue Asim Ahmed has termed the current financial situation in the country as 'critical'.

"Economic situation [in the country] is critical and there is a shortfall in revenue. We will soon overcome the tax gap," Mr Ahmad said during his address at a function held at the Customs House to mark the International Customs Day.