KARACHI: Despite a turbulent week dominated by geopolitical concerns, the Pakistan Stock Exchange (PSX) closed on a slightly negative note, with the KSE-100 Index losing 1.2 per cent week-on-week (WoW) to settle at 114,114 points. However, analysts are optimistic about the market’s outlook for the coming week, citing improved macroeconomic indicators, easing inflation and expectations of an IMF disbursement. They believe that any signs of diplomatic de-escalation between Pakistan and India could trigger a strong recovery rally.
According to Muhammad Awais Ashraf, director research at AKD Securities, the probability of a full-scale conflict between Pakistan and India remains low, despite recent escalations following the Pahalgam incident. He said nuclear deterrence, external financial dependencies and diplomatic engagement from the US and GCC countries serve as key barriers to an all-out confrontation.
The recent downgrade in diplomatic ties, suspension of the Indus Waters Treaty by India, and Pakistan’s airspace closure to Indian airlines rattled investor sentiment, dragging the KSE-100 down by as much as 7,104 points (six per cent) during April.
Yet, despite these developments, market depth showed notable improvement. Average daily traded volumes rose by 31.8 per cent month-on-month (MoM) to 697 million shares in April, while the average traded value climbed by 23.8 per cent to Rs43.7 billion.
Ashraf noted that the recent market correction offers an attractive entry point for long-term investors, with the index trading at a price-to-earnings ratio of 5.8x and offering a compelling 9.5 per cent dividend yield. Improved macroeconomic fundamentals, including a six-decade low inflation rate and a two-decade high current account surplus, add strength to this thesis.
Foreign investors were net sellers during April, offloading equities worth around $45 million, primarily from insurance and brokerage accounts. In contrast, companies and other organizations absorbed this pressure, injecting $26.4 million and $22.2 million, respectively.
The momentum, according to Ashraf, now favours sectors such as banks, exploration and production, fertilizer, cement, autos, OMCs, textiles, and technology, which are poised to benefit from monetary easing and fiscal reforms.
Topline Securities’ analyst Nabeel Haroon highlighted that the KSE-100 index declined by 1.17 per cent during the week, largely due to the escalation in regional tensions and disappointing quarterly corporate earnings.
Investor participation also waned, with average daily volumes and value declining by 29 per cent and 6.0 per cent WoW, respectively. However, the April inflation reading at just 0.3 per cent, a record low, and optimism over an upcoming IMF Executive Board meeting on May 9 have lifted hopes of policy easing by the central bank.
Adding to the cautiously optimistic tone, Syed Danyal Hussain of JS Research pointed to stabilising crude oil prices and falling domestic fuel costs as potential tailwinds. He also noted that the IMF is set to consider a $2.3 billion package, including $1.3 billion under the climate-focused Resilience and Sustainability Facility (RSF), which would improve liquidity and investor confidence.
While geopolitical risks remain, analysts agree that the market has likely priced in most of the bad news. Should tensions ease and the IMF disbursement proceed as expected, the PSX could stage a strong recovery in the coming weeks. The broader market tone remains cautiously bullish with a preference for high-dividend, fundamentally strong stocks.