It seems that the pessimism caused by less than expected rate cut has begun to evaporate on the Karachi Stock Exchange. But here is the thing: very few were expecting the central bank to reduce rates much higher than a modest 100 bps in the first place; so, in essence, there shouldn't have been a fallout as the cut was priced-in.
All eyes were, instead, looking for clues to how 'aggressively the central bank would slash rates in future", keeping in mind IMF's recent caution over monetary softening. So when the SBP governor cited his concerns over fiscal slippages and falling domestic savings, the market paused, retraced its steps and then ended 78 points lower on Monday after tanking 153 points in intraday trade.
KSE-100 index's snap recovery, subsequently, was based on two elements, a) key support around 7900~7950 points, and b) hopes of materialisation of the pledges made by Friends of Pakistan Forum after Richard Holbrooke, America's special representative for Af-Pak, reportedly said that President Obama would preside over the forum's next meeting, due on September 24.
A positive outlook on those pledges means potentially lower government reliance on stringent external debt, thereby easing balance of payment situation for short-run and subsiding the crowding out impact, inspires hopes.
The market takes this positively - hence the recovery - and it is likely that this recovery will extend throughout this month, targeting 8700 points by August end. Some may have some 'legitimate' expectations of a hiccup at around 8300 points by the end of this week.
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