PSX: Geopolitics and internal security concerns mar performance
Pakistan Stock Exchange (PXS) trended upwards for most of the week before adjusting by 3,703 points on Friday’s session, wiping out earlier gains to close the benchmark index at 184,130pts, down 45 points or 0.02%WoW. The decline was triggered by escalating geopolitical tensions over US and Iran, alongside adverse domestic security developments.
Earlier in the week, sentiments were supported by Prime Minister’s industrial relief package, coupled with record high monthly exports of US$3.06 billion during January 2026, resulting in 7%YoY drop in trade deficit. Inflation reading during the month remained lower than expected at 5.8%YoY.
Cement sector’s offtakes hit 5-year high of 4.54 million tons, up 13%YoY, driven by higher sea-exports.
OMC offtakes also increased by 6%YoY to 1.35 million tons.
Banking sector deposits expanded by 0.7%WoW, providing a positive backdrop for the sector.
T-Bill and PIB yields rose by 15 to 40 bps, in the first auction following SBP’s decision to leave policy rate unchanged.
Despite improved sentiments, market participation weakened during the week, with average daily trading volume declining by 12%WoW to 1.2 billion shares, from 1.4 billion shares in the earlier week.
On the currency front, PKR appreciated by 0.02%WoW against the greenback during the week, closing the week at 279.71 PKR to a US$.
Other major news flow during the week included: 1) UAE rolls over US$2 billion Pak loan for a month, 2) GoP requests Saudi Arabia for two-year extension in oil facility, 3) Barrick reviews Reko Diq project amid security concerns, 4) FBR collection rose 16%YoY to PKR1,015 billion in January 2026, and 5) Private sector credit expands by PKR 589 billion in FYTD.
Power Generation & Distribution, Jute, Leather & Tanneries, Inv. Banks/ Inv. Cos./ Securities Cos., and Real Estate Investment Trust were amongst the top performing sectors, while Chemical, Engineering, Tobacco, Oil & Gas Exploration Companies and Cement were amongst the laggards.
Major buying was recorded by Mutual Funds, Brokers, and Companies with an aggregate net buy of US$32 million. Banks and Foreigners were major sellers with net aggregate sell of US$25 million.
Top performing scrips of the week were: KEL, ILP, SAZEW, HMB, and TRG, while laggards included LOTCHEM, PIBTL, PPL, GADT, and KTML.
AKD Securities foresees the positive momentum at PSX to continue due to improving macros and continuous focus on reforms amid political stability. The brokerage house forecasts the benchmark Index to reach 263,800 by end December 2026.
Investors sentiments are expected to improve on the likelihood of foreign portfolio and direct investment flows, driven by improved relations with the United States and Saudi Arabia.
Top picks of the brokerage house are: OGDC, PPL, UBL, MEBL, HBL, FFC, ENGROH, PSO, LUCK, FCCL, INDU, ILP and SYS.
AKD Securities, expects its Cement Universe profitability to decline by 2%YoY to PKR24.6 billion in 2QFY26, from PKR25.2 billion in the same period last year, primarily due to 6%YoY decline in domestic cement prices in the northern region. Revenue is expected to remain flat YoY at PKR129 billion, as the impact of 10%YoY increase in local offtakes would be offset by lower domestic prices in North and 70%YoY drop in North-based exports amid Afghan border closures over the last two months. Moreover, royalty rates in KPK were increased effective July 2025, while the coal mix in the North region also shifted toward Richards Bay coal due to Afghan border closure. Consequently, gross margins are projected to contract in 2QFY26.
The brokerage house anticipates LUCK and FCCL profitability to remain flat YoY in 2QFY26, at PKR14.7/ share and PKR1.6/share respectively. For LUCK, higher prices in South, improved domestic offtakes, and higher other income are expected to offset the impact of lower North prices and weaker earnings from the chemical segment. While for FCCL, 9%YoY increase in local offtakes, lower finance cost, and higher other income are likely to outweigh the pressure of lower prices and higher coal cost.
DGKC’s profitability is expected to marginally drop by 2%YoY to PKR6.1/ share, mainly due to 8%YoY decline in offtakes and lower prices in North. However, gross margins are projected to slightly improve to 25.4%, as relatively higher prices and lower coal cost in the South region are expected to offset the aforementioned pressures. In addition, DGKC’s finance cost is projected to decline by 71%YoY, driven by easing interest rates and lower outstanding borrowings.
MLCF, CHCC, PIOC and KOHC earnings to decline on price pressure. The brokerage house expects MLCF/ CHCC/ PIOC/ KOHC profitability to decline by 19%/8%/5%/14%YoY to per share in 2QFY26, respectively. The said decline is primarily driven by: 1) drop in domestic prices in North, and 2) higher weighted average coal cost due to increased mix of Richards Bay coal amid Afghan border closure. Subsequently, gross margins are anticipated to contract to 35.1%/31.3%/29.5%/33.9%, respectively. Along with the result, the brokerage house expects CHCC and PIOC to announce half-yearly dividends of PKR1.5/ share and PKR5.0/ share, respectively.
The brokerage house maintains an ‘Overweight’ stance on the sector, supported by: 1) demand recovery, 2) stability in gross margins, and 3) reduction in debt levels along with monetary easing. Top picks of the brokerage house are LUCK and FCCL.
Oil & Gas Development Company (OGDC) has announced a third formation discovery at the previously reported Baragzai X-01 well in the Nashpa Block, KPK. The newly tested Samana Suk and Shinawar formations flowed at 3,100 bpd oil and 8.15 mmcfd gas through a 32/62′′ choke. Based on wireline log evaluation, two cased-hole drill stem tests were earlier conducted in the Kingriali (Triassic) and Datta (Jurassic) formations. These discoveries take cumulative production from the three formations to 9,500 bpd of oil and 24.15mmcfd of gas.
The incremental earnings impact from the Suk & Shinwari formation alone is estimated at PKR1.3/ share for OGDC (WI: 57.2%) and PKR1.0/ share for PPL (WI: 27.8%). On a combined basis, the cumulative impact from these formations rises to PKR3.9/ share for OGDC and PkR3.0/ share for PPL.
Given successful Drill Stem Testing (DST) at these three formations at Baragzai-X1, the brokerage house expects commingled production to be brought online post installation of requisite wellhead and surface facilities.
The brokerage house has a ‘BUY’ stance on OGDC and PPL with December 2026 TP of PKR522/ share and PKR412/ share due to: 1) growing production profile, alongside strong reserve replacement, 2) higher exploration prospects on back of improving liquidity situation, 3) 8.33% stake in highly prospective Reko Diq Mining Project, 4) offshore working interests in Abu Dhabi Off-shore Block-5, along with consortium partners and 5) improvement in cash payouts.