Stocks seen range-bound ahead of budget clarity

KARACHI: The Pakistan Stock Exchange (PSX) ended the week on a strong note as investor sentiment improved following significant progress on resolving structural economic challenges.

With confidence building ahead of the federal budget and optimism surrounding a possible IMF agreement, the benchmark KSE-100 index climbed to an all-time high of 121,641 points, posting a week-on-week (WoW) gain of 1.6 per cent. Going forward, the market’s trajectory will likely be shaped by the finalisation of budgetary measures; clarity on the IMF deal; and the implementation of fiscal reforms.

With the government due to unveil the federal budget on June 10, the PSX is expected to remain highly sensitive to developments related to tax measures, subsidy allocations and progress with the IMF. Continued reform momentum, clarity on fiscal targets, and external support will be key drivers of market direction in the near term.

According to Syed Danyal Hussain, analyst at JS Global, this rally was largely fuelled by positive signals from the government on a potential IMF agreement, which lifted pre-budget sentiment.

The average daily traded volume during the week stood at 660 million shares, down slightly by 0.2 per cent WoW, while the traded value clocked in at Rs27.8 billion, indicating steady investor participation despite caution around upcoming macroeconomic events.

The most notable development was the government’s finalisation of a Rs1.275 trillion financing package with approximately 18 commercial banks to address the country’s longstanding circular debt issue in the power sector. This deal, finalised after negotiations and backed by the IMF, marks a major step in tackling structural inefficiencies in Pakistan’s energy landscape.

On the external front, the Asian Development Bank (ADB) approved a $800 million loan under Pakistan’s public finance programme, offering crucial support for the government’s fiscal reforms. This follows the ADB’s earlier commitments to aid in macroeconomic stability.

Inflationary data for May-2025 showed the Consumer Price Index (CPI) rising by 3.5 per cent year-on-year, significantly higher than April’s 0.3 per cent, due in part to the dissipating base effect. This brought the average inflation for the first 11 months of FY25 to 4.61 per cent. Meanwhile, the trade deficit narrowed by 23 per cent month-on-month (MoM) to $2.6 billion, reflecting improved export performance and possibly softer import demand.

Despite positive developments, some concerns linger. The Federal Board of Revenue (FBR) missed its 11MFY25 tax collection target by Rs1 trillion, collecting Rs10.2 trillion against the targeted Rs11.2 trillion. This shortfall may influence the government’s fiscal strategy in the upcoming budget and negotiations with the IMF.

From a sectoral perspective, local cement dispatches rose by 9.0 per cent year-on-year in May-2025, bringing 11MFY25 volumes nearly flat compared to the previous year. Encouragingly, export demand supported overall growth, with a 26 per cent increase in cement exports over the same period, resulting in a total dispatch growth of 2.0 per cent.

Nabeel Haroon, analyst at Topline Securities, also attributed the market’s bullish performance to optimism around the resolution of the circular debt and multilateral support. He highlighted that the combination of structural reform agreements and foreign financing commitments has buoyed investor confidence ahead of the FY26 budget announcement.