Monetary policy announcement on Monday to drive Pakistan stocks

Equities movement at the Pakistan Stock Exchange is likely to be driven by the monetary policy announcement as a decision above expectations would help build up new heights.

Moreover, investors would keep a close eye on corporate announcements and the speed at which future contracts are settled.

The KSE-100 index lost 392 points, or 0.4%, to close at 114,880 points for the week ended January 24, 2025.

Saad Hanif, head of research at Ismail Iqbal Securities, said all eyes are glued to Monday's monetary policy announcement.

“Though there is already a consensus of a 100bps cut, the announcement would rerate some of the high-yielding sectors, which have been showing double-digit dividend yields, like fertilizer and the banking group”.

He added that cyclical stocks like cement, steel, and autos are likely to perform well.

Saad said the slash in policy rates play a pivotal role in improving sales in the auto sector. Auto sector lending has risen sharply, with continuous decline in the auto loans on a month-to-month basis.

Sales are expected to pick up further as consumers await new model variants from auto companies.

Salman Ahmed, Head of Institutional Sales at Aba Ali Habib, said that the recent move from the government to restrict non-filers from buying securities has created a shiver, as a good number of non-filers are investors in the market.

Moreover, he said any surprise from the State Bank cutting interest rates by as much as 200bps against expectations of 100bps would help uplift the index.

Salman said the index is mostly driven by political factors. President Trump's swearing-in as president had some observers feeling that it has had some impact on Asian countries both economically and politically.

Another factor that might keep market movement in check would be the rollover week and rumors of a mini-budget to fill the daunting gap of tax collection, though this has been ruled out by the chairman of the FBR.

Ali Nawaz, CEO of Chase Securities, said there are a lot of triggers awaiting investors next week. On Monday, the monetary policy announcement with a cut of 100-200 bps might help build a fresh rally.

Corporate results will start pouring in, which will help key stocks with financial announcements of key stocks to trend well.

Ali said inflation numbers will be announced on Feb 1, with the rate expected to be around 3%, a nine-year low, which will cement the way for fresh investment in selected stocks.

An analyst from Arif Habib said market participants are expected to closely monitor the MPC meeting on Jan 27, 2025 (which will mark the first MPC meeting of CY25).

"We project a 100bps cut in the monetary policy rate, arriving at 12% (a level last seen in March 2022)," said an analyst.

Moreover, many financial results are expected to be announced in the upcoming week, due to which certain scrips are expected to be in the light.

An analyst from Spectrum Securities said that focus has shifted to December earnings announcements (annual, half-year, and quarterly). Presently, these expectations are driving the market, as reflected in the movement of share prices in recent days.

The key thing to watch is whether prevailing prices are justified based on these earnings. This may result in high volatility and downward adjustments in prices of those stocks whose earnings fail to meet expectations. Similarly, better-than-expected earnings may cause an upward rerating of those stocks.

Dealers said this will be futures rollover week; therefore, one should be ready for higher volatility. Activity in the futures market has been pretty lackluster during recent days, amid declining trading volumes and the absence of bid offers (or thin volumes) on trading screens.

This reflects the possibility of higher rollover costs in February futures contracts.

Foreign buying was witnessed during the week, amounting to $5.6 million compared to a net sell of $9.7 million last week. On the local front, selling was reported by Banks ($14.1 million) and NBFCs ($0.1 million).

Average volumes arrived at 698 million shares, up 25.1%, while the average value traded settled at $123.9 million, up 7.0%.