KSE-100 edges higher as investors await budget clarity, IMF progress

KARACHI: The Pakistan Stock Exchange (PSX) ended the week on a cautious yet positive note, as the KSE-100 index posted a modest gain of 0.5 per cent week-on-week (WoW) to close at 119,691 points. While investor sentiment remained cautious amid stalled IMF talks and delayed budget presentation, the market showed resilience, closing the month of May with an impressive 7.5 per cent gain on a month-on-month (MoM) basis. Moving forward, the market’s direction will hinge on fiscal clarity, potential tax reforms and progress in IMF negotiations, factors likely to dominate investor focus in the weeks ahead.

According to Syed Danyal Hussain, analyst at JS Global, the outgoing week saw improved participation, with average daily volumes rising by 35 per cent WoW to 662 million shares. However, foreign investors continued to exit the market, recording a net outflow of $5.57 million, which was largely offset by local buying, especially from mutual funds and insurance companies.

The week started on a jittery note after the IMF concluded its visit without reaching an agreement on key fiscal targets, forcing the government to reschedule the federal budget announcement to June 10, 2025. Talks are still ongoing, focusing on increasing tax revenue and cutting back on expenditures, key conditions for unlocking the next tranche under the IMF programme.

In a positive development, China reaffirmed its commitment to refinance $3.7 billion in commercial loans by the end of June 2025, providing some external financing relief. Meanwhile, the State Bank of Pakistan (SBP) continued its market support activities, recording $223 million in net foreign exchange purchases in February 2025, bringing total purchases to $5.9 billion during the first eight months of FY25.

In the latest T-bill auction, the SBP raised Rs772 billion, exceeding its target of Rs650 billion, with yields remaining stable across all maturities. Additionally, the central bank’s foreign exchange reserves rose by $70 million WoW to $11.52 billion, offering some cushion to the domestic currency.

Nabeel Haroon, analyst at Topline Securities, highlighted that the KSE-100 index rose 7.5 per cent MoM in May 2025. This rally was underpinned by the SBP’s decision to cut the policy rate by 100 basis points to 11 per cent, citing an improved inflation outlook. The IMF’s approval of the first review under the Extended Fund Facility (EFF), along with the green light for an additional $1.4 billion under the Resilience and Sustainability Facility (RSF), further boosted investor sentiment.

Macroeconomic indicators provided mixed signals. CPI inflation for April 2025 stood at 0.3 per cent, down from 0.7 per cent in March, signalling easing inflationary pressure.

Trade data, however, raised some concerns. The trade deficit widened sharply to $3.39 billion in April, up 55 per cent MoM, the highest in three years. Still, the current account managed a surplus of $12 million for the month, helped by a significant increase in remittances, which rose to $3.2 billion (up 13 per cent YoY). Cumulatively, the current account surplus stood at $1.88 billion for the first 10 months of FY25.

Average daily traded volume and value for the month were reported at 566 million shares and Rs28 billion, respectively, indicating improving liquidity conditions and growing investor appetite.

As investors look ahead, clarity on fiscal measures, taxation policies and progress with the IMF will be pivotal in shaping near-term market momentum.