KSE-100 rally to sustain on strong sentiment

KARACHI: The outlook for the coming week remains bullish, with analysts expecting the KSE-100 index to sustain its upward momentum on the back of Pakistan’s smooth completion of the IMF’s second review, minimal flood impact and improved global credit ratings.

According to AKD Research, investor sentiment will likely improve further due to potential foreign portfolio and direct investment flows, supported by strengthened ties with the US and Saudi Arabia. With limited alternative investment avenues and attractive equity valuations, trading at a multiple of 8.8x alongside a dividend yield of 6.7 per cent, market momentum is set to continue.

During the outgoing week, the Pakistan Stock Exchange (PSX) maintained its historic rally, buoyed by the Oval Office meeting between the prime minister and the US president, which injected fresh investor confidence.

The KSE-100 surged by 6,733 points, or 4.1 per cent week-on-week, to close at a record high of 168,990 points. Despite the rally, average daily traded volume fell 19.8 per cent week-on-week, settling at 1.8 billion shares compared to 2.2 billion shares in the prior week, while traded value stood at Rs72 billion.

On the macroeconomic front, inflation for September 2025 clocked in at 5.6 per cent year-on-year (YoY), the highest level in ten months, largely due to recent flooding. Yields on T-bills rose between 19 and 41 basis points across all tenors in the latest auction, as investors anticipated the policy rate to remain unchanged in the near term.

The trade deficit widened sharply to $3.3 billion in September compared to US$2.3 billion in the same month last year, pushing the Q1FY26 cumulative deficit to $9.3 billion, according to the Pakistan Bureau of Statistics (PBS).

Sector-wise, cement dispatches for September reached 4.5 million tonnes, up 7.0 per cent YoY, aided by a 14 per cent growth in domestic sales. Oil Marketing Companies also reported offtakes of 1.4 million tons, reflecting an 8 per cent year-on-year rise. The rupee appreciated marginally by 0.04 per cent week-on-week, closing at 281.26 against the US dollar.

Other significant developments included the government’s talks with the IMF on a US$7 billion Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) review, as well as the FBR’s imposition of a 40 per cent regulatory duty on used car imports.

The rally was led by Commercial Banks, Fertilizer, Refinery, Vanaspati & Allied Industries, and Transport sectors, which gained between 5.8 per cent and 9.3 per cent week-on-week. Conversely, Modarabas, Jute, Textile Spinning, Close-end Mutual Funds, and Textile Composite underperformed, losing between 2.7 per cent and 3.3 per cent. Flow-wise, Mutual Funds and Individuals emerged as key buyers with net purchases worth $47.9 million and $34.3 million respectively, while Insurance, Companies, and Banks/DFIs recorded net selling of $30.3 million, $21.9 million, and $19.2 million, respectively.

Syed Danyal Hussain at JS Research highlighted that the KSE-100’s rally marked the PSX’s best nine-month performance since 2009, with banking stocks alone contributing 4,313 points to the index. He noted Pakistan’s successful repayment of a $500 million Eurobond as a further confidence booster, though he cautioned that fiscal challenges persist as the FBR missed its Q1FY26 revenue target by around Rs200 billion.

Analyst Nabeel Haroon at Topline Securities echoed the bullish view, crediting sustained buying by mutual funds and individuals amid low returns from other asset classes as the main driver of the market’s gains. He pointed to the widening trade deficit and higher T-bill yields as potential risks but maintained that strong liquidity and sentiment should keep the market buoyant in the near term.