PSX Shares Rise 600 Points on Imagination of IMF Staff-Level Agreement
Shares of the Pakistan Stock Exchange (PSX) jumped on Monday, rising more than 600 points, as investors were optimistic about the possibility of a staff-level agreement (SLA) with the International Monetary Fund (IMF).
The benchmark KSE-100 index increased by 1,027.32 points, or 0.89%, to 116,563.48 points at 1:01 pm from the last close of 115,536.16. The index closed at 116,199.59 at the end of the day, an increase of 663.43 points, or 0.57%.
Topline Securities Chief Executive Mohammed Sohail noted that even though the delay in achieving the staff-level accord, the market stayed optimistic, driven by expectations of eliminating Pakistan’s circular debt with the help of bank finance.
As per Arif Habib Limited, great strides have been taken in the reduction of power sector’s Rs. 1.5 trillion circular debt. The government is to fund Rs. 1.25 trillion of this value in the form of fresh bank loans, on top of the Rs. 250 billion that has already been allocated in the budget. These loans will be extended at an interest rate that is 0.90% less than the Karachi Interbank Offered Rate (KIBOR).
Yousuf M. Farooq, who heads research at Chase Securities, put the improved sentiment in the market down to anticipation of an easy IMF agreement. He further cited the probable elimination of circular debt and an impending cut in power tariffs as contributing to optimism in the market. Farouk also indicated that the market expected the current account to be boosted by enhanced remittances in Ramazan.
Awais Ashraf, Research Director at AKD Securities, reminded us that positive comments from the IMF mission on Pakistan’s performance on the Fund targets had enhanced investor confidence, and there were expectations of the SLA getting signed shortly. He also added that stocks in the energy sector were set to remain under the limelight due to the possibility of solving the issue of circular debt.
Sana Tawfik, Research Head at Arif Habib Limited, concurred that the IMF deal news, along with developments on circular debt settlement, were major contributors to improving market sentiment.
In spite of setbacks the previous week, such as a halt in interest rate reduction and weakening rupee because of reducing foreign exchange reserves, the share market had continued to be in the green for the fifth week running. The market jumped past 115,000 points, which was its highest level in nearly two months.
Although the week began on a negative note, with the State Bank of Pakistan keeping interest rates unchanged at 12% and the IMF expressing concerns over the government’s proposal to borrow Rs. 1.25 trillion in order to settle circular debt, investor mood was lifted by favorable remarks from the visiting IMF mission.
Activity was subdued as a result of Ramazan, with the market staying within a narrow 2,100 points range for the week. The overall mood was still positive, however, and rested on hopes of an IMF agreement success and a resolution of circular debt.
