Shares at the Pakistan Stock Exchange closed flat on Thursday after the KSE-100 index shed 589 points during the first three hours of trading before regaining its losses to close 35.29 points, or 0.08 per cent, up.

The market opened at 42,863.15 points and reached the day's low, falling by 589.99 points or 1.38pc, around 12:17pm. However, the late afternoon session saw the market recover all its losses and close slightly in the green.

Explaining the recovery, Ahsan Mehanti, director of Arif Habib Group, said that institutional buying of cement and oil stocks in refineries in the last hour helped bolster the index.

Yesterday, the PSX had witnessed a meltdown during which the KSE-100 lost 1,100 points in intraday trade, two days after witnessing a plunge of over 1,400 points.

Earlier on Thursday, when stock prices were falling, stockbroker Zafar Moti said a number of factors had dented investor sentiment, which is why the PSX was witnessing a persistent slump.

"There are reports that the interest rate will increase by two per cent, which is compelling investors to sell shares," he had said, adding that the "support level in the market" was also declining and an increase in the savings rate was also affecting investor confidence.

Meanwhile, Alpha Beta Core Chief Executive Officer Khurram Schehzad said the selling pressure in the market would continue until the government finalised a deal with the International Monetary Fund (IMF).

Pointing out that a slump was also being witnessed in global markets, he said the State Bank of Pakistan's next monetary policy would define the future of the market.

"If the interest rate will increase, the market could fall to new lows," he said. "But if a Saudi deal [is finalised] and the IMF extends [the size of] its loan programme, the pressure on the market could reduce," he added.

Dawn's editorial on Wednesday noted that the most important factor behind the erosion of investor sentiment has been the failure of the new coalition government to come up with a credible plan to take politically tough decisions to fix the economy. For example, it remains undecided about the reversal of the fiscally unsustainable energy subsidies, which is the ‘prior action’ that IMF wants it to take before it agrees to restart funding.

In recent meetings with the new finance minister, the IMF has linked the continuation of its loan programme with the reversal of fuel subsidies, which were introduced by the previous government. However, Prime Minister Shehbaz Sharif has now twice rejected the Oil and Gas Regulatory Authority's summaries to increase fuel prices.

The PTI had announced a four-month freeze (until June 30) on petrol and electricity prices on February 28 as part of a series of measures to bring relief to the public.

The PML-N coalition government had severely criticised Imran Khan's government for "derailing" the IMF program through fuel subsidies but despite being at the helm for a month, it has not reversed the subsidies. The finance minister has repeatedly said these subsidies are not feasible and are costing the government Rs120 billion a month.

Ismail said petrol should have been priced at Rs245 per litre according to the agreement the former government did with the IMF. However, the PML-N led government was still selling it at Rs145 per litre and would try its best to maintain that price, he added — a sign that the new government is finding it difficult to take a decision that might be unpopular with its voters.

Moreover, the editorial pointed out, that there are differences within the PML-N on how to deal with the Fund, with former finance minister Ishaq Dar, who is opposed to IMF ‘dictation’, wanting a new loan with ‘softer’ conditions. "If the strings of the finance ministry are being pulled from London, then Finance Minister Miftah Ismail has his hands tied."