The capital market saw a robust rally on Wednesday, fueled by a de-escalation of political tensions following Pakistan Tehreek-e-Insaf (PTI) announcing the temporary suspension of its protest in Islamabad. This decision came after intense confrontations between protesters and law enforcement agencies in the capital, which had sparked investor concerns.
PSX Surges in Response to Eased Political Uncertainty
The Pakistan Stock Exchange (PSX) witnessed a strong performance, with the KSE-100 Index jumping by 3,740.84 points (3.96%) to reach 98,315.19 points, up from the previous day’s close of 94,574.16 points. The relief rally came as a result of PTI calling off its “do-or-die” protest, which had disrupted the federal capital since November 24. The suspension of the protest followed a government crackdown, which included the dispersal of demonstrators from Islamabad’s Red Zone.
In a statement, PTI emphasized that the decision to halt the protest was in response to what it called the government’s “brutality” and its plans to turn the capital into a “slaughterhouse” for peaceful citizens. The party assured that future actions would be decided after consultation with party leader Imran Khan.
Investor Confidence Restored Amid Political Stabilization
The easing of political unrest encouraged investors to return to the market, with many regaining confidence after previously retreating due to the uncertainty. Muhammad Saad Ali, Director of Research at Intermarket Securities, attributed the market’s gains to the improved sentiment following PTI’s announcement. He noted, “The market is staging a relief rally today, following the news that the PTI protests may have been quelled by the government. The market has pared back yesterday’s big losses almost completely.”
He also pointed to the banking sector as a key driver of the rally, especially after the State Bank of Pakistan (SBP) made significant regulatory changes that provided further support to the sector.
Banks Lead the Rally Amid SBP’s Regulatory Changes
The banking sector emerged as one of the primary beneficiaries of the rally. The PSX’s surge was notably supported by the SBP’s recent decision to remove the Minimum Profit Rate (MPR) requirement on deposits from non-individuals, including public sector enterprises and public limited companies. Announced on Tuesday, this move is expected to boost the profitability of conventional banks, particularly as interest rates are anticipated to fall in the coming year.
Under the previous regulations, commercial banks were required to pay a minimum profit rate on all savings deposits linked to the SBP’s repo rate. By lifting this requirement, the SBP aims to ease the burden on large banks and enhance their earnings outlook, especially for 2025. Analysts predict that this policy shift will support improved earnings and payouts for these institutions.
In addition, the SBP’s reversal of arbitrary charges on large deposits exceeding Rs1 billion further alleviates pressure on depositors and strengthens the banking sector’s stability.
SBP’s Efforts to Create a Balanced Banking Environment
The removal of the MPR aligns with the SBP’s broader efforts to create a more competitive and transparent banking environment, benefiting both financial institutions and their depositors. The central bank’s policy changes are part of a wider strategy to promote fair banking practices and improve the overall health of the sector.
With the political situation stabilizing and banking regulations being adjusted to enhance profitability, the capital market has been buoyed, reflecting improved investor sentiment and optimism for the future.
