Shares at the Pakistan Stock Exchange (PSX) on Thursday made only marginal gains of nearly 42 points amid uncertainty regarding the upcoming budget.

The KSE-100 index stood at 75,021.59, gaining 185.29, or 0.25 per cent, at 11:34am from the previous close of 74,836.30.

However, the index failed to hold the gains and closed at 74,878.12, up by only 41.82 points, or 0.06pc, from the previous close.

Shahab Farooq, director of research at Next Capital Limited, attributed the initial upward trajectory to expectations of a drop in inflation for May and decline in T-Bills cut-off yields in auction yesterday “fueling optimism on rate cut expectations” in the upcoming Monetary Policy Committee (MPC) meeting in June, “leading to positive sentiments in the market in the initial hours of the day”.

Farooq said, “We, however, do not expect the policy rate to be reduced in the upcoming MPC meeting as we believe that MPC would prefer to wait and assess budgetary measures before deciding on the quantum and timing of cut in the policy rate.”

He also highlighted that “the market is unable to hold the optimism due to uncertainties related to the upcoming federal budget”.

The benchmark KSE-100 turned negative as the session progressed, trading in the red at 1:02pm as the index lost 247 points from the previous close. However, the index once again turned positive, making marginal gains at around 3:30pm.

Awais Ashraf, director of research at Akseer Research, said, “The drop in cutoff yields of treasury bills in yesterday’s auction, amid lower expected inflation readings for May, enhances optimism for a rate cut in the upcoming monetary policy. Subsequently, investors remain bullish on cyclical sectors.”

“However, this enthusiasm seems to be short-lived given concerns over fiscal tightening and the new IMF programme,” he cautioned.

Yousuf M. Farooq, director of research at Chase Securities, attributed the upward trajectory to the decline in the three-month treasury bills by 60 basis points yesterday.

He also noted that there were 30bps declines in six-month and 12-month papers. “This decline in rates has fueled expectations of a rate cut going forward. Interest rates act like gravity for stock prices, as interest rates go down, stock prices go up.”

“The market could remain jittery till the budget as investors seek clarity on new taxes and the IMF programme. Monetary and fiscal policy are both expected to remain tight going forward,” he added.