Pakistan Stock Exchange's (PSX) benchmark KSE-100 index shed 1,243 points in intraday trading on Wednesday before bouncing back later in the day and more than halving its losses.
The benchmark index opened at 46,008.85 points and gained slightly within the opening minute of the session to reach day's high of 46,031.89 points.
The bourse then witness sharp selling and by 1:12pm had plunged to day's low of 44,788.17 points.
It did stage a substantial recovery and cut its losses to 411.61 points (0.89%) by the end of the session, closing at 45,597.24.
'Late reaction to monetary policy'
Saad Ali, head of research at Intermarket Securities, deemed the dip "a late reaction to the monetary policy".
"According to most surveys, a rate hike was not expected by the majority of the market. The SBP has also guided for further increases which generally have an inverse correlation with the index," he said.
"Going forward, if the policy rate continues to be jacked up, banks — the biggest sector-wise constituent — should carry the market forward. Among them, mid-tier players, including Islamic, are likely to perform better than their larger counterparts."
It is pertinent to mention here that the State Bank of Pakistan on Monday announced an increase of 25 basis points in the benchmark policy rate, taking it to 7.25 per cent for the next two months effective from October 1, 2021.
'Continued foreign, institutional selling responsible'
According to Intermarket Securities' head of equities, Raza Jafri, "continued foreign selling combined with local institutional selling dragged the stock market lower sharply".
He said the increase in interest rate, though "justified and sensible", had proven to be the trigger. "Dips are a buying opportunity and confidence can shore up when the IMF talks near," he added.
'Abandonment of cricket tours reignited uncertainty'
Meanwhile, Saad Bin Naseer of Mettis Global — a web-based financial data and analytics portal — said the market had been in a congestion phase for a long time and was trading within a narrow range.
"There were no positive triggers in terms of news to move it but the abandonment of cricket tours by New Zealand and England reignited uncertainty about the future. The interest rate hike and the upcoming Financial Action Task Force meeting also changed the sentiments," he explained.