Pakistan stocks face volatile week as interest rate decision looms

Pakistan's stock market is expected to remain volatile in the coming week as investors await the central bank's interest rate decision, assess corporate earnings and monitor geopolitical tensions that have pushed international oil prices higher, according to brokerage reports.

The State Bank of Pakistan's (SBP) Monetary Policy Committee is scheduled to meet on October 26, with brokerages offering differing expectations about whether the central bank will maintain its policy rate or raise it by 50 basis points.

AKD Securities expects the central bank to maintain its policy rate at 11.5%, citing strengthening economic indicators, while Spectrum Securities sees expectations of a possible rate increase weighing on investor sentiment.

The contrasting assessments come after the benchmark KSE-100 Index declined by 4,045 points, or 2.4%, during the week ending October 23, closing at 162,375 points.

What could determine the stock market's direction next week?

The October 26 monetary policy announcement is expected to be a major influence on market sentiment, alongside September-quarter corporate earnings and developments in the Middle East. Brokerages differ over the likely interest rate decision, while rising international oil prices pose additional risks to inflation and investor confidence.

AKD Securities expects the SBP to maintain the current interest rate, pointing to stronger economic indicators and a slowdown in broader industrial activity.

The brokerage said favorable developments in the Middle East conflict could moderate international oil prices and create room for monetary easing.

It also described Pakistani equities as attractively valued, with the market trading at a forward price-to-earnings ratio of 5.9 times.

Spectrum Securities, however, expects cautious trading ahead of the policy announcement, citing expectations of a possible 50-basis-point rate increase.

The brokerage identified geopolitical uncertainty, including developments involving Iran and tensions around the Strait of Hormuz, as another risk to market sentiment.

It warned that attacks affecting shipping and any renewed military action against Iran could undermine confidence and add to inflationary pressures through higher oil prices.

Arif Habib Limited also identified the monetary policy decision and the ongoing September-quarter corporate earnings season as important factors likely to shape market direction next week.

Oil prices rise as KSE-100 loses 4,045 points

International oil prices climbed by approximately 6% during the outgoing week amid continued Houthi attacks on Saudi Arabia and reports of possible US military action against Iran after the midterm elections.

The increase added to concerns about Pakistan's energy import costs and inflation outlook, even as domestic petrol and diesel prices declined during the review period.

AKD Securities attributed the domestic fuel-price reductions partly to a lower ceiling on refinery crack spreads, which measure the difference between crude oil and refined fuel prices, alongside relatively stable Dubai crude prices.

The decline in the stock market was accompanied by weaker trading activity. Average daily traded volume fell 13.4% from the preceding week to approximately 496 million shares, according to AKD Securities.

The brokerage reported net selling of USD 10.2 million by mutual funds and USD 5.7 million by foreign investors during the week, while individual investors recorded net purchases of USD 14 million.

Among sectors, refineries were the weakest performers, declining 10.1%, followed by technology and communication stocks, which fell 7.7%.

Looking ahead, investors will assess whether improving domestic economic indicators and corporate earnings can support equities despite elevated oil prices and uncertainty over the SBP's next interest rate decision.