The rise in the stock market to new heights reflects the market belief that the government will strike a deal with the IMF. The confidence in government circles has reached the point where the Minister of State for Finance, Ali Pervez Malik, has hinted that the loan package might exceed the $6 billion mentioned so far, saying that the package would be ‘north of $6 billion’. Mr Malik felt that the government had done quite enough in the budget. It might be remembered that Prime Minister Shehbaz Sharif had come out with the admission that the IMF had been involved in the budgeting process. This seems to have been good news for the stock market, which crossed 80,000 points on the KSE Index, a new high in a bull market which has been rising steadily since the present government took office, and which has gone up about 10 percent since the Budget was presented. It seems everyone is on the same page. The government has ordered certain measures, the IMF has waited to see that they are implemented, and the stockbrokers and other investors are looking on with approval.
The KSE Index does not reflect the economy, with large swathes still off it. The powerful agriculture sector, for example, is almost completely out of it (though it is represented by fertilizer and tractor manufacturers). However, it does reflect the sentiment about the direction the economy is going. Share prices of individual companies do reflect an estimate of how much profit they will make (and thus of how much of a dividend they will pay out.). No government should rely on the stock market rising as an expression of greater trust in the economy, but the temptation is usually too great to resist. The restraint of the present government probably comes from the knowledge that the IMF package is a done deal, something which the stock market seems to assume. Apart from its support for the government, there is nothing else which explains this rise. It cannot last forever, because the brokers need dips as well as increases to make money.
On the other hand, the government will become even more anxious to have the deal delivered. The alternative will be a puncturing of the stock market balloon, which will be an additional headache to handle for a government already panicked by refusal from the IMF. A bourse bloodbath is something no one wants.
