Stock prices on the PSX fell today, concluding the week with a decline in profits
Pakistan Stock Exchange Experiences Record-Setting Rally Amid Improved Economic Fundamentals
In a surprising turn of events, the Pakistan Stock Exchange's (PSX) KSE-100 index did not decline as previously reported, but rather experienced a record-setting rally and multiple all-time highs during the referenced week. This was driven by several positive macroeconomic factors.
The key contributors to this rally included a 9-year low fiscal deficit of 5.38% in fiscal year 2024-25, which improved investor confidence by signaling fiscal discipline and macroeconomic stability. Another significant factor was the influx of both local and foreign investor funds into the market.
Optimism about a potential US-Pak tariff deal, supportive government policies, and surging exports also played a crucial role in boosting the market. Sectoral gains were particularly notable in energy, fertilizer, and banking stocks, with companies such as Fauji Fertilizer, United Bank Limited, MCB Bank, Hub Power, and Engro Fertilizer leading the charge.
Positive economic indicators such as a 36% year-on-year revenue growth outpacing expenditure increases, stable inflation at 4.1%, and expectations of monetary easing and resolution of circular debt further bolstered the market.
Regarding the impact on foreign exchange reserves, while the exact changes during that week are not explicitly quantified, the context suggests that the fiscal improvement and surge in exports likely supported foreign currency inflows and currency stabilization. Exchange rate stability or modest strengthening was mentioned in connection with broader economic gains, providing indirect evidence that foreign exchange reserves would have been positively affected or at least not adversely impacted.
However, it's important to note that the decline in foreign exchange reserves was due to external debt repayments, not the stock market rally. Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company, attributed the decline to profit-taking. The PSX's market trend was relatively steady upward prior to the decline, with a drop following investor profit-taking.
In July, Pakistan's imports rose 12% month-on-month (MoM) and 29% year-on-year (YoY) to $5.4 billion. This increase in imports, coupled with the surge in exports, widened the July trade deficit by 44% YoY to $2.8 billion.
On the PSX, the KSE-100 index reached an intraday high of 146,813.43 points, a gain of 1,166.30 points or 0.8%. However, it touched an intraday low of 144,917.18 points during the week. On Friday, the PSX's benchmark KSE-100 index closed at 145,382.79 points, a drop of 264.34 points or 0.18% compared to the previous session.
In summary, rather than a decline, the KSE-100 index rose sharply due to improved fiscal and economic fundamentals, bolstered investor sentiment, and foreign exchange stability linked to export growth and fiscal discipline. Consequently, the outlook for Pakistan’s foreign exchange reserves during this period was likely positive or stable, reflecting these developments.
The enhanced market performance can be attributed to the influx of both local and foreign investor funds in the business sector, as well as the improvement in the fiscal deficit within the finance industry, signaling macroeconomic stability in Pakistan.
The positive outlook for Pakistan’s foreign exchange reserves during the referenced period can be attributable to export growth, foreign exchange stability linked to the fiscal deficit, and the boost in the industry sector that aided in currency stabilization.
