KARACHI: A surprise rally at the stock market on Friday saw the KSE-100 index accumulate massive gains of 1,502 points or 4.80 per cent — the highest single day surge in terms of percentage in 11 years since May 16, 2009. It stormed past several barriers and settled at 32,832.

Giving to watch the trading halt as KSE-30 index took a plunge by 5pc or to the ‘’lower circuit’’ in as many as four previous sessions, it was a whiff of fresh air for investors to witness ‘’trading halt’’ of 60 minutes as the 30-share index hit the “upper circuit” of 5pc touching intraday high by 2,015 points.

The break provided the market time to cool down as investors fell over each other in frenzied buying across all sectors. At the close, which was further marked by shortened due to Friday, 319 of the 362 active shares turned out to be gainers — most making at or close to their ‘upper limit’.

The index-heavy scrips that led the gainers included Engro Corporation, Hub Power, Fauji Fertiliser, Lucky Cement, Oil and Gas Development Company, Pakistan Petroleum and MCB.

The trigger to a sluggish market was provided by the State Bank of Pakistan which in a surprise move on Thursday evening announced a big cut in the policy rate by 200 basis points to 9pc. In doing so, it conceded to the Industrialists clamour for a single digit interest rate.

“The interest rate reduction would provide relief to corporates in lowering their financial charges”, said Arif Habib, the former chairman of the stock exchange. But blessings did not come in singles and he pointed out that concurrently the International Monetary Fund board had approved the $1.4 billion Rapid Financing Instrument as a support to the country in its bid to stave off the COVID-19 damages.

Finally, the G-20 countries included Pakistan among 25 least developed countries which would result in postponement of debt payments of around $12bn for one year. Moreover, the sharp fall in 10-year Pakistan Investment Bonds yield to 7.7pc from 8.65pc encouraged investors to steer funds from risk-free investment to equities.

JS Global CEO Kamran Nasir concurred that the primary reason for the market surge was the decrease in interest rate to single digit which was a “popular sentiment” among investors and industrialists.

Highly leveraged companies would be able to put their balance sheet in better state of health.

He conceded that the people at central bank were making reasonable decisions, but thought that the country was in a Catch-22 situation.

“The country would have to improve reserves and create fiscal space,” he believed. The blessing in disguise was the price of oil which had hit the pit with a major positive impact on import bill. Nasir affirmed that in the end it would be the economy that will determine the direction of the stock market.

But some suspected the surprise rally to be a knee-jerk action. Investors Lounge CEO Baqar Jafri observed that the rate cut just before the rollover week (of future contracts), trapped short-sellers who expected the upcoming week to remain lacklustre amid investors’ concerns over the rising number of infected people in the country and generally low volumes in fast approaching Ramazan.

“The elephant in the room is still COVID-19. If we do not deal with it well, even a further cut in discount rate would not create aggregate demand in the economy” he said.

Published in Dawn, April 18th, 2020