KARACHI: The Pakistan stock market crashed on Monday as investors were rattled over the inflation figures for January which came out at an alarming 12-year high of 14.6pc, fuelling fears of delay in monetary policy easing.

The benchmark KSE-100 index opened deep in the red and sank by 1,222 points or nearly three per cent - representing the highest single day decline in 14 months - closed below the 41,000 psychological level at 40,409.

A staggering sum of Rs203 billion was knocked off the market capitalisation in a single day.

Investors were spooked by uncertainty over the decision by the Financial Action Task Force (FATF) on Pakistan status to be decided later this month and the country’s ability to pull itself out of the grey list; the start of talks with International Monetary Fund on its review which would signal release of its third tranche under the $6bn facility; shortfall in revenue collection and unsettled political wrangling among the coalition partners of the government.

But analysts’ consensus was that the mindblowingly high inflation was at the heart of the meltdown. The market since August last year had been on an upward trajectory amid growing optimism over the improvement in economy and low consumer price index which might allow monetary easing in first quarter 2020.

Arif Habib, former chairman of the stock exchange, said that looking at the January inflation figures, investors worried over the delay in interest rate cut which may be pushed forward from March to May. He said that sentiments were dampened as market believed that the bottom lines of leveraged companies such as cement, steel and others might be dented due to higher finance costs.

It was also thought to cast a shadow over the share valuations. According to Mohammad Sohail, CEO at Topline Securities, the market was now anticipating rate cut in the second half of the year subject to shrinkage in fiscal deficit and decline in inflation.

Besides, the meltdown in global markets spilled into the local bourse as corona virus fanned fears prompting investors to flee stocks and seek the shelter in safe havens such as gold and government papers. The decline in international crude prices kept the heavyweight oil and gas exploration and production shares under the hammer.

Among participants, mutual funds, banks and foreign investors sold off stocks but much of the liquidity was absorbed by the individuals and insurance companies. The volume increased 5pc over last session to 203 million shares while traded value rose 15pc to $59m.

During the session, the KSE-30 index tanked to intraday low at 18,407 points, representing a plunge of 3.87pc, staying slightly short of the 4pc drop which would have brought the market to a halt in compliance of the new circuit breaker regulations that went into effect from January.

Sectors that dragged down the index included commercial banks by 320 points, exploration and production declining 271 points, fertiliser 137 points and cement 98 points.

Stocks that suffered major fall included Pakistan Petroleum, down 5.3pc; Habib Bank 3.7pc; Engro Corporation 3.7pc; Oil & Gas Development Company 4.2pc; MCB 3.8pc; Pakistan Oilfields 3.7c and Lucky Cement 3.5pc which together wiped off 580 points.

Published in Dawn, February 4th, 2020