Over the past two fiscal years, the Pakistan Stock Exchange (PSX) has recorded total gains of 203% in PKR terms and 206% in USD terms, thanks largely to the macroeconomic stability the country has achieved with the support of the ongoing $7 billion International Monetary Fund (IMF) bailout.
Additionally, the PSX’s gains stem from Islamabad’s successful completion of the first IMF review in March; aggressive monetary easing from 20.5% to 11%; Fitch upgrading the country’s credit rating from CCC+ to B-; and improved market liquidity amidst diversion flows from fixed income to equities.
According to Bloomberg, Pakistan’s market was the 8th best performer in FY25, with a total USD return of 57%. Cumulatively over the past two fiscal years, however, it ranked the best-performing market in the world. The positive momentum of the stock market has accompanied healthy trading activity with average traded volumes in the cash/ready market increasing by 37% year-on-year to average 631 million shares/day. The average traded value also jumped by 80% year-on-year to Rs. 28 billion/day during FY25.
Year-on-year, the average volumes in the Futures market increased by 26% to 196 million shares/day, while the average traded value of the same increased by 60% to Rs. 10.1 billion/day.
During FY25, foreign corporates turned net sellers of $321 million compared to net buying of $152 million in FY24. This reversal was due to FTSE rebalancing related foreign selling during the year.
Locally, mutual funds were major buyers in FY25 with net buying of $227 million followed by companies and individuals with net buying of $91 million and $66 million, respectively. However, banks, insurance and brokers were primarily sellers of $49 million; $19 million; and $18 million, respectively.
Key stocks of KSE-100 index that outperformed in FY25 included Bannu Woollen Mills, up 226%; National Bank, up 214%; and GlaxoSmithKline Pakistan, up 179%. Key sectors that outperformed during the year included Vanaspati, Jute, and Woolen.
Key factors to watch in FY26
- IMF reviews: Successful IMF program reviews in FY26 are key in re-rating the market multiples to historic mean. An analyst from Topline Securities believe the government may face some pressure in achieving revenue targets of FY26. However, it is likely the government will pass the reviews in a timely manner by meeting the primary balance through cutting development and other non-essential expenditures.
- Credit Rating Upgrade and subsequent launch of Eurobond and Sukuk: There is an expectation of a credit rating upgrade in FY26 as the government continues efforts to achieve the same. This is likely, as debt ratios and FX reserves are improving. With a credit rating upgrade to “B” category, Pakistan may resort to international bond market by issuing Eurobond and Sukuks, which would further support FX reserves and strengthen the debt maturity profile of the country.
- Regional geopolitical developments and Pak-U.S. ties: Any developments, positive or negative, in Pak-U.S. ties under the Trump administration, along with regional tensions, could significantly influence market sentiment. A potential resurgence of the conflict between Pakistan and India could also negatively affect investor confidence. Additionally, any further conflict in the Middle East is likely to have broader macroeconomic implications for Pakistan, as the country remains dependent on oil imports, and could weigh on market performance.
- Commodity Prices: Brent oil prices have declined from an average of $84/barrel in FY24 to $74/barrel in FY25; currently trading at $68/barrel. The recent conflict in the Middle East led to a surge in oil prices to over $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 PIA/Discos and Reko Diq Investment: Some other events that may shape market direction would be breakthroughs in the long-pending privatization of PIA, DISCOs, First Woman Bank, HBFC, Roosevelt Hotel and GENCOs, and the materialization of Reko Diq Investment plan from Saudi-based investors.
- FX Reserves: Foreign exchange reserves held by the State Bank of Pakistan stood at $9.065 billion for the week ending June 20, 2025. However, in the last 10 days, the central bank received foreign inflows of approximately $4.9 billion, which will raise reserves to around $14 billion, in line with the IMF target. For the coming year, IMF projects SBP reserves to reach $17.7 billion; any shortfall in this target could negatively impact macroeconomic stability and investor sentiment.
Future gains
The Pakistan market is currently trading at a PE of 5.7x vs historical average PE of 7.0x. Topline Securities, last year, noted that the successful passage of the FY26 budget in line with IMF guidelines would serve as catalyst in re-rating of market multiple to historic average of 7x. Topline expects the KSE 100 to reach 160,000 Index level by June 2026, a return of 29%. Out of this, 11% is through PE re-rating, 9% earnings growth and 9% dividend yield.