Stocks surge to record high; momentum likely to continue

KARACHI: With the KSE-100 index breaking through the psychological barrier of 130,000 points for the first time in history and ending the week at 131,949 points, up 6.0 per cent week-over-week (WoW), the Pakistan Stock Exchange (PSX) got off to a bullish start to FY26.

With a promising economic backdrop and fresh foreign inflows into the central bank’s reserves, analysts expect the momentum to carry forward into the coming weeks. Investor optimism is being reinforced by declining inflation, improved external balances, and the diversion of liquidity from fixed income to equities due to falling yields and increased taxation on other asset classes.

According to Syed Danyal Hussain, analyst at JS Research, the PSX closed FY25 as the best-performing market in the region, posting an impressive total return of 60 per cent. That momentum has now extended into FY26, pushing the KSE-100 into uncharted territory. Weekly average daily traded volume (ADTV) rose by 31 per cent WoW, highlighting heightened investor participation.

The market’s rally was supported by several positive developments on the macroeconomic front. Pakistan secured a total of US$3.4 billion in rollover and refinancing from China, along with an additional $1.5 billion in loans from Middle Eastern commercial banks and multilateral institutions. Of this, $3.7 billion has already been reflected in the State Bank of Pakistan’s (SBP) foreign exchange reserves, which rose to $12.7 billion by the end of the week. The SBP expects the remaining inflows to materialise next week, taking total reserves to $14.51 billion, a major confidence booster for investors.

Inflation data also offered further reason for optimism. The Consumer Price Index (CPI) for June 2025 stood at 3.2 per cent year-on-year (YoY), bringing the full fiscal year’s average inflation to 4.5 per cent, a dramatic improvement from 23.4 per cent in FY24. Lower inflation not only strengthens purchasing power but also paves the way for potential interest rate cuts, which are supportive of equity valuations.

Trade data offered a mixed picture. While the monthly trade deficit narrowed by 9.0 per cent month-on-month (MoM) in June 2025 to $2.3 billion, the overall trade deficit for FY25 rose by 9.0 per cent YoY. Meanwhile, repatriation of profits and dividends on foreign direct investment (FDI) surged by 141 per cent YoY to $248.8 million in May 2025, reflecting improving confidence and profitability among foreign investors.

Nabeel Haroon, analyst at Topline Securities, noted that the 6.09 per cent WoW rise in the KSE-100 index was largely driven by institutional buying, as new liquidity shifted towards equities. He attributed this trend to lower yields on government securities and higher taxation on fixed-income investments, which has led investors to seek better returns in the stock market.

In addition, the government’s reduction in profit rates on National Savings Schemes (NSS), by 15 to 59 basis points across various instruments, has further incentivised retail and institutional investors to reallocate capital to equities.

The Federal Board of Revenue (FBR) released its FY25 tax collection data, reporting receipts of Rs11.7 trillion, which missed the revised target by Rs178 billion. Despite the shortfall, the figure still represents a strong performance in a challenging economic environment.

Looking ahead, the market is expected to maintain its upward momentum, supported by strong foreign exchange reserves, a benign inflation outlook, and the start of the corporate earnings season. Investors will be closely watching for monetary policy signals, fiscal consolidation efforts, and further progress on privatisation and structural reforms to sustain this rally.