- Benchmark index up 60%YoY in PKR terms and 57% in USD terms in FY25
Over the past two years (FY24 and FY25), the Pakistan Stock Exchange (PSX) has recorded a total gain of 203% in PKR terms and 206% in US dollar terms, thanks to the macroeconomic stability country has achieved with the support of the IMF programme.
The other factors contributing to this remarkable rally are: 1) completion of first IMF review of March this year, 2) aggressive monetary easing, reduction in policy rate to 11%, from 20.5 percent, 3) improvement in country’s credit rating by Fitch from CCC+ to B-, 4) improvement in macro indicators, and (5) improvement in market liquidity amidst diversion of flows to equities, from fixed income.
As per Bloomberg data, Pakistan’s market was the 8th best performer in FY25 with a total US dollar return of 57%. However, over the cumulative two-year period (FY24 and FY25), it ranked as the best-performing market in the world.
Continuation of positive momentum in stock market has been accompanied by healthy trading activity with average traded volumes in the Cash/ Ready market increased by 37%YoY to an average of 631 million shares/day. The average traded value also jumped by 80%YoY to PKR28 billion/ day during FY25.
The average volumes in the Futures market also increased by 26%YoY to 196 million shares/ day. The average traded value increased by 60%YoY to PKR10.1 billion/ day.
During FY25, foreign investors emerged Net Sellers with US$321 million as compared to Net Buyer of US$152 million in FY24. Reversal of trend was due to FTSE rebalancing related foreign selling during the year.
On local side, mutual funds were major buyers with net buy of US$227 million followed by Companies and Individual with net buying of US$91 million and US$66 million, respectively. However, Banks, Insurance and Brokers remained net sellers with US$49 million, US$19 million and US$18 million respectively in FY25.
The best performing stocks of KSE-100 index that outperformed the market in FY25 included Bannu Woollen Mills (BNWM) up 226%, National Bank (NBP) up 214%, and GlaxoSmithKline Pakistan (GLAXO) up 179%.
TheKey sectors that outperformed market during the year included Vanaspati, Jute, and Woolen.
According to Topline Securities, following are few of the key factors to look out for in FY26;
IMF Reviews in FY26:
Successful IMF program reviews in FY26 would be key in re-rating the market multiples to historic mean. The brokerage house believes, GoP may face some pressure in achieving revenue targets of FY26. However, the GoP will pass the IMF reviews timely by meeting the primary balance through cutting development and other non-essential expenditures.
Credit Rating Upgrade and subsequent launch of Eurobond and Sukuk:
Topline expects credit rating upgrade in FY26 as GoP is also quite vocal on this and has been meeting with the rating agencies. The rating upgrade is quite likely as debt ratios and foreign exchange reserves reserves are showing improvements. With the credit rating upgrade to “B” category, Pakistan may resort to international bond market by issuing Eurobond and Sukuks which will further support foreign exchange reserves and strengthen the debt maturity profile of the country.
Geopolitical developments:
Any developments in Pakistan–US relations under the Trump administration, along with regional tensions, could significantly influence market sentiment. Currently, a ceasefire is in place between India and Pakistan. However, any escalation could negatively affect investor confidence. Additionally, any further conflict in the Middle East is likely to have broader macroeconomic implications for Pakistan amidst Pakistan’s dependency on oil imports and could weigh on market performance.
Commodity prices:
Brent oil prices have declined from an average of US$84/ bbl in FY24 to US$74/ bbl in FY25 and are currently hovering around US$68/bbl. The recent escalation of war in the Middle East has significantly increased oil prices to over US$75/barrel. The petroleum group constitutes a major portion of Pakistan’s imports, and the outlook for Pakistan’s economy will remain closely tied to the trend in global commodity prices going forward.
Privatization of PIAA/Discos and Reko Diq Investment:
Some other events that may shape market direction would be like any breakthrough on front of privatization of PIAA, DISCOs, First Woman Bank, HBFC, Roosevelt Hotel and GENCOs, and materialization of Reko Diq Investment plan from KSA based investors.
Foreign Exchange Reserves:
Foreign exchange reserves held by the SBP were reported at US$9.065 billion for the week ending June 20, 2025. However, in the last 10 days, the SBP received foreign inflows of approx. US$4.9 billion, which will raise reserves to around US$14 billion, in line with the IMF target. For the next year FY26, IMF projects SBP reserves to reach US$17.7 billion and any shortfall in this target could negatively impact macroeconomic stability and investor sentiment.
The brokerage house in its strategy report dated November 16, 2024 reported that successful passage of budget FY26 in line with IMF guidelines will serve as catalyst in re-rating of market multiple to historic average of 7x.
The brokerage house expects KSE 100 to reach 160,000 Index level by end June 2026, a return of 29%. Out of this, 11% is through PE re-rating, 9% earnings growth and 9% dividend yield.