Karachi, August 07, 2023 (PPI-OT): Caretaker government 2023

We screen historical data and look at six caretaker set ups. We analyse periods of 3M run prior, during and 3M post caretaker data points for the following:

IMF relationship - upcoming caretaker will be first since 1997 to inherit an existing IMF program Performance of KSE-100 - caretakers are generally remunerative - 1990s caretakers were accompanied by relief rallies given circumstances leading to the formation of caretakers being viewed as an end to political impasse / crises.

Interest Rate and Currency Parity - We have not included data such as inflation, fiscal / external accounts as care-taker tenor is short (3-4 months) and policy moves that impact these variables usually reflect with a lag and hence would not correspond accurately to care-taker tenure.

While the upcoming set up of a Caretaker Cabinet is expected to go through a smooth transition, clarity on will of continuing reforms by the Caretaker team will be crucial for equity markets.

Moreover, beyond the Caretaker government, a smoother transition to a new government would also be key for the market. Having said that, any set up that continues reforms chalked out by IMF, leading to no interruptions in financing external needs, could also be among the desired options by market participants.