Stocks likely to perform positively amid earnings season

KARACHI: The stock market outlook for the coming week remains broadly positive, with investors focusing on the upcoming Monetary Policy Committee (MPC) meeting and the corporate earnings season.

According to a research report by AKD Securities, the KSE-100 index is expected to continue its upward trajectory, potentially reaching 165,215 points by December 2025. This forecast is underpinned by strong corporate earnings, particularly in the fertiliser sector, sustained return on equity in the banking sector, and improved cash flows of exploration and production (E&P) and oil marketing companies (OMCs), driven by falling interest rates and overall macroeconomic stability.

During the outgoing week, the Pakistan Stock Exchange (PSX) remained largely range-bound, with the KSE-100 index fluctuating within a band of 2,053 points. In the absence of major triggers and due to the rollover of futures contracts, the benchmark index posted a modest gain of 610 points or 0.44 per cent on a week-on-week basis, closing at 139,207 points.

Trading activity, however, remained subdued, with market participation declining by 16.7 per cent to an average daily volume of 635 million shares. The average daily traded value also saw a drop, falling by 20 per cent week-on-week to Rs28.6 billion.

According to Nabeel Haroon, an analyst at Topline Securities, the cautious investor behaviour stemmed from the beginning of the earnings season and rollover of the July futures contract, both of which impacted market sentiment.

On the macroeconomic front, significant positive developments supported market confidence. Most notably, S&P Global Ratings upgraded Pakistan’s long-term sovereign credit rating from CCC+ to B- after a gap of three years, citing improved financial conditions. This upgrade led to a decline in Eurobond yields by 36 to 61 basis points (bps) across various tenors. In the foreign exchange market, the Pakistani rupee appreciated by 0.5 per cent week-on-week (WoW), closing at 283.45 per US dollar -- its strongest weekly performance in 93 weeks. This strength was supported by the ongoing crackdown on the illicit foreign exchange market and enhanced regulatory oversight.

In the latest treasury bill auction, yields for one-month papers dropped by 39bps to 10.85 per cent, indicating market expectations of a monetary easing in the upcoming MPC meeting scheduled for July 30, 2025. Analysts anticipate a 50bps rate cut, citing moderating inflation and easing geopolitical tensions.

Consumer price index (CPI) inflation for July 2025 is projected to come down to 2.5 per cent year-on-year (YoY), from 3.2 per cent in June. Meanwhile, the government has formed a task force to address the Rs2.8 trillion gas sector circular debt, with a strategy that includes commercial borrowing and the introduction of a special levy to fund repayments.

Other key developments included the Asian Development Bank revising Pakistan’s FY25 GDP growth forecast to 2.7 per cent, the International Monetary Fund conditioning the removal of 4.0 per cent additional sales tax on the expansion of the tax net, and foreign investors repatriating $2.2 billion in FY25 -- broadly flat compared to the previous year.

The Economic Coordination Committee also approved Rs100 billion financing for 50,000 low-income housing units.

Sector-wise, food, transport, and auto assemblers outperformed the broader market, registering weekly gains of 6.2 per cent, 4.8 per cent, and 4.2 per cent respectively. Conversely, vanaspati and allied industries, woollen, and leather sectors witnessed declines of 13.1 per cent, 7.3 per cent, and 4.3 per cent WoW, respectively.

In terms of investor flows, foreign investors and other organisations were net sellers, offloading $7.6 million and $8.5 million worth of equities, respectively. These were largely absorbed by mutual funds and individual investors, who recorded net buying of $7.8 million and $5 million, respectively.

Overall, the sentiment in the equity market remains cautiously optimistic, with strong macroeconomic signals and expectations of monetary easing providing a supportive backdrop for the coming weeks. Investors are likely to remain focused on corporate earnings announcements and monetary policy direction as key drivers of market momentum.