- Foreign reserves, tax tweaks — PSX delivers 60.15% return in FY25, outshining gold, bonds, and traditional savings
The Pakistan Stock Exchange (PSX) has emerged as a beacon of optimism in the country’s financial landscape, reflecting not only a bullish trend in equities but also signaling broader macroeconomic stability. The KSE-100 Index’s historic climb to an all-time high of 131,949.06 points has caught the attention of domestic and international investors alike. This surge—marked by strong institutional buying, favorable policy measures, and improving economic indicators—marks a significant shift in sentiment toward Pakistan’s capital markets.
In this comprehensive analysis, we explore the key drivers behind the PSX rally, dissect sectoral performance, examine macroeconomic underpinnings, evaluate investor behavior, and provide an outlook for the market’s trajectory going forward.
Historic Rally: A New Fiscal Year Takes Off
As the new fiscal year 2025-26 commenced, the PSX roared to life. The benchmark KSE-100 Index soared 6.1% in a single week, gaining 7,570 points to close at 131,949.06—its highest level in history. This remarkable ascent was not just a numeric achievement but a reflection of the market’s evolving dynamics.
Supporting this rally was a substantial increase in trading activity. Daily average trading volume surged 31.4% to 967 million shares, while the average traded value jumped 33% to Rs41.5 billion ($145.7 million). Such momentum clearly indicates a resurgence of investor interest and renewed faith in equity markets as a viable and attractive investment avenue.
Macroeconomic Fundamentals: The Backbone of Bullish Sentiment
Strong market performance is almost always underpinned by robust macroeconomic indicators. In Pakistan’s case, several positive data points aligned to create fertile ground for equity growth:
- Inflation dropped to 3.2% in June 2025—the lowest in nine years—down from 3.5% in May.
- The trade deficit narrowed by 9.4% month-on-month to $2.32 billion in June, reflecting better export performance and manageable imports.
- Foreign exchange reserves rose by a staggering $3.66 billion in just one week (ending June 27), reaching $14.5 billion—a figure that comfortably met the State Bank of Pakistan’s target.
- The Pakistani rupee remained stable, ending the month at Rs283.97 against the US dollar.
These indicators not only reflect a stabilizing economy but also build investor trust. Lower inflation suggests possible interest rate cuts, while strong reserves and a narrowing trade deficit improve the external account outlook.
Policy Support: Finance Act 2025-26 Reshapes Investment Preferences
One of the critical drivers behind this market surge has been the tax-related changes in the Finance Act 2025-26. The government increased the withholding tax on fixed-income instruments and deposit returns to 20%, while keeping equity investment gains taxed at a lower rate of 15%.
This strategic move directly influenced asset allocation. Investors, particularly institutional players and high-net-worth individuals, began shifting portfolios from fixed-income to equities, seeking more favorable post-tax returns. The declining yields on bonds further made this transition more attractive, adding to the liquidity boost in the stock market.
Sectoral Leaders: Who’s Driving the Market?
Banking Sector – The Torchbearer
The banking sector has been at the forefront of the PSX rally, both in performance and investor sentiment. Commercial banks added 4,561 points to the index. Stocks like:
- United Bank Limited (UBL) rose by 5.51%
- MCB Bank surged 5.66%
- Bank AL Habib gained 4.65%
- Habib Bank Limited, Meezan Bank, and National Bank of Pakistan also witnessed robust buying
KTrade Securities credited this sector for powering the KSE-100 Index’s two-day surge past its intermediate target of 130,000 points.
These gains are underpinned by healthy earnings, attractive dividend yields, strong liquidity positions, and expectations of rate cuts, which would reduce deposit costs and boost net interest margins.
Fertilizers, Technology, and E&P
Beyond banking, other major sectors also played pivotal roles:
- Fertilizer sector contributed 722 points, supported by stable urea and DAP prices and consistent demand.
- Technology and Communication added 438 points, driven by rising investor interest in digital transformation plays.
- Exploration & Production (E&P) contributed 401 points, bolstered by stable global oil prices and improving local energy dynamics.
Notable performers included Engro Fertilizers, Systems Limited, Pakistan Petroleum Ltd, and Mari Petroleum.
Pharmaceuticals Stage a Comeback
The pharmaceutical sector also witnessed a notable resurgence. Searle Pakistan hit its upper circuit, and Citi Pharma, Abbott Laboratories, and Haleon Pakistan attracted significant interest. Investor focus returned to healthcare amid expectations of better margins and increased demand.
Underperformers: The Drag on the Index
While the overall market trended upward, some sectors lagged:
- Cement sector shed 136 points, largely due to declining domestic demand.
- Glass and ceramics, refineries, and textile stocks also showed underwhelming performance.
- Top decliners included Maple Leaf Cement, Lucky Cement, and Ghani Glass.
This underperformance was attributed to seasonal slowdowns, inflationary input costs, and regulatory uncertainties in pricing structures.
Changing Investor Behavior: Local Confidence vs Foreign Caution
Investor sentiment has clearly shifted. While foreign investors remained net sellers—offloading $15.3 million in equities in the latest week, up from $11.8 million previously—local investors, especially mutual funds and companies, stepped in aggressively.
- Mutual funds were net buyers of $22.1 million
- Local corporates invested $12.2 million
This divergence highlights growing domestic confidence in Pakistan’s equity market, despite foreign investors remaining cautious amid global macroeconomic uncertainty.
Trading Highlights: Active Stocks and Market Breadth
Market breadth also turned positive:
- Of the 473 stocks traded, 256 advanced, 192 declined, and 25 remained unchanged.
- WorldCall Telecom led in volume (89.9 million shares), followed by The Bank of Punjab and Kohinoor Spinning Mills.
High trading volumes, exceeding 1.026 billion shares with a total value of Rs49.3 billion, signal deepening investor engagement and market liquidity.
Energy Sector Developments and Sustainability
Beyond the numbers, real progress is being made in Pakistan’s energy and industrial sectors. In a milestone step toward environmental responsibility, Mari Energies signed an agreement with Ghani Chemical Industries to explore the innovative reuse of vent and exhaust gases from the Sachal Gas Processing Complex in Daharki, Sindh. This signals industry’s growing commitment to sustainability and clean energy adoption.
Industrial Updates: Cement and Oil Marketing
- Cement dispatches in FY25 rose 2% year-on-year to 46.2 million tonnes. Export-led growth offset a 2.4% drop in domestic demand.
- Oil marketing companies recorded a 7% increase in product offtake to 16.3 million tonnes—indicative of stable consumption patterns.
These statistics reaffirm that the industrial base is not only holding up but in some cases expanding, further reinforcing bullish sentiment in the equities market.
Asset Class Comparison: Equities Take the Crown
In FY25, the PSX emerged as the best-performing asset class in Pakistan, delivering an outstanding return of 60.15%, outpacing all traditional investment avenues:
| Asset Class | FY25 Return |
|---|---|
| KSE-100 Index | 60.15% |
| Gold | 45.19% |
| T-Bills | 21.44% |
| Defence Savings Certificates | 12.61% |
| Bank Deposits | 12.60% |
| Pakistan Investment Bonds | 11.97% |
| Rupee Appreciation (USD) | 1.95% |
These figures highlight the tremendous opportunity cost of staying out of equities during a strong bull cycle.
Outlook: Sustained Growth on the Horizon
Valuations Remain Attractive
According to Arif Habib Ltd, the PSX is trading at a forward P/E ratio of 6.8x, well below its 10-year average of 8.0x. Coupled with a dividend yield of 7.4% (historical average 6.5%), Pakistani equities remain attractively priced, especially in a global environment where yields are compressed and inflation fears linger.
Forecast: 165,000+ by Year-End?
AKD Securities projects the KSE-100 Index to reach 165,215 points by December 2025, driven by:
- Strong corporate earnings
- Persistent strength in the banking and fertilizer sectors
- Stable energy prices and improved cash flows for E&P companies
- Possible interest rate cuts due to controlled inflation
Risks to Watch
While optimism is warranted, some caution is necessary. Potential risks include:
- Geopolitical tensions affecting foreign investor sentiment
- Global commodity price shocks
- Profit-taking at higher levels
- Currency volatility if external accounts worsen
Conclusion: A Market Reawakened
The Pakistan Stock Exchange’s performance in FY25—and its promising start to FY26—underscores the resilience and potential of the country’s capital markets. With robust macroeconomic fundamentals, supportive fiscal policies, attractive valuations, and dynamic sectoral shifts, Pakistan is fast emerging as a key frontier market for investors seeking both growth and stability.
While global headwinds and domestic challenges remain, the current trajectory points to a market reawakened—poised not just to sustain momentum but to achieve new heights.
For investors, policymakers, and market observers, this is not just a bull run—it is a story of transformation, resilience, and opportunity in Pakistan’s economic evolution.
The author, Nazir Ahmed Shaikh, is a freelance writer, columnist, blogger, and motivational speaker. He writes articles on diversified topics. He can be reached at nazir_shaikh86@hotmail.com