Market reacts to Thursday's bloodbath

As the Pakistan Stock Exchange's (PSX) benchmark KSE-100 Index witnessed its worst single-day fall of the calendar year on Thursday, and the PKR dropping to its weakest level in history against the US dollar, market experts cited the bloodbath to expectations over the increase in the policy rate and deteriorating external trade figures.

“Taking indication of the T-bill auction, market is skeptical over the possibility of an increase in policy rate by the central bank in the upcoming monetary policy meeting,” Saad Hashmey, Executive Director at BMA Securities, told Business Recorder, adding that the market expects a 150bps hike.

“Furthermore, the increase in trade gap has also dented investors' confidence,” he added.

At noon on Thursday, the index was hovering around the 43,900-point level -- a fall of 3.2% -- and heading for one of its worst days of the calendar year. It lost further ground in the next hour or so, falling to the 43,500-point level before hitting 43,100 near the end of the session.

Worst PSX sell-off since March 2020: KSE-100 plummets nearly 4.7%

Similarly, in the currency market, as per the State Bank of Pakistan (SBP), the PKR closed at 176.42 against the USD after a day-on-day depreciation of 94 paisas or 0.53%.

“Fear of increase in discount rate amid hike in cut-off yield during yesterday’s T-bill auction led to the bloodbath,” Faisal Khan, Head of Equities at IGI Securities, told Business Recorder.

During the T-bill auction, the cut-off yields increased by over 100 bps as compared to the secondary market.

“The import figures were far higher than expectations,” Tahir Abbas, Head of Research at Arif Habib Limited (AHL), said. He added that the increase in cut-off yield signals hike in policy rate.

“We expect the policy rate to increase in the range of 75-100 bps which would push the rate at 9.5-9.75%.”

Against USD: Pakistan's rupee drops to historic low as trade deficit widens

Abbas, however, was of the view that the market ‘overreacted’ and would stabilise in the coming days.

He urged the government to take stern measures to curb the import bill in order to ease the current account deficit.

In November 2021, imports were recorded at nearly $8 billion, a year-on-year growth of 80%.

Pakistan’s exports during November 2021 increased by 33% to a historic monthly high of $2.903 billion as compared to $2.174 billion during the corresponding period of last year, according to the commerce advisor. However, a historic high in the import figure led to the widening of the trade deficit.