The Pakistan Stock Exchange (PSX) witnessed a historic surge in trading on Friday, with the benchmark KSE-100 index crossing the 82,000 mark for the first time. By 10:49 AM, the index had gained 770.68 points, a 0.95 per cent increase, reaching 82,229.96 points from its previous close of 81,459.28.
Market analysts attributed the rally to a sharp decline in yields on government securities, signalling an optimistic outlook for inflation and interest rates. Yousuf M. Farooq, Director of Research at Chase Securities, pointed out that the fall in yields reported a day earlier was a key driver of the market’s momentum.
“The market is expecting a significant drop in inflation and interest rates,” Farooq stated. “There is now a kinked yield curve in government securities, with the 2-year and 5-year yields both higher than the 3-year yield, which suggests that the financial environment is shifting.”
The Pakistan Investment Bonds (PIBs) auction on Thursday saw a notable 335 basis points reduction in the cut-off yield for the three-year tenor. Additionally, the government borrowed less than half of its target, a sign that it is focussing on lowering borrowing costs. In a further move to ease pressure on borrowing costs, the government also rejected all bids in the treasury bills auction on Wednesday, reinforcing the notion that the state is aiming to reduce debt-servicing expenses, which have consumed much of its tax revenue.
Awais Ashraf, Director of Research at AKD Securities, linked the market’s upward trajectory to expectations surrounding the upcoming International Monetary Fund (IMF) Executive Board approval and the continued decline in interest rates.
“The significant drop in PIB yields in Thursday’s auction, combined with anticipated approval from the IMF, has spurred positive sentiment,” Ashraf explained. “Commercial banks have played a crucial role in driving the KSE-100 index upwards, contributing 675 points. This is due to improved financial performance, solvency ratios, and reduced concerns over Non-Performing Loan accumulation.”
Thursday’s session also saw a nearly 1,000-point increase in the KSE-100 index, which analysts attributed to a combination of the U.S. Federal Reserve’s interest rate cut, the upcoming IMF Board meeting on September 25, and lower inflation figures in Pakistan.