Pakistan Market up by 60% in FY25

ISLAMABAD:  Pakistan’s benchmark KSE-100 index is up 60% YoY in PKR terms and 57% in USD terms in FY25.

Over the past two years (FY24 and FY25), the PSX has recorded a total gain of 203% in PKR terms and 206% in USD terms, thanks to the macroeconomic stability country has achieved with the support of the IMF program.

The other factors contributing to this remarkable rally are (1) completion of first IMF review of Mar 2025, (2) aggressive monetary easing from 20.5% to 11%, (3) improvement in country’s credit rating by Fitch from CCC+ to B-, (4) improving macro indicators, and (5) improved market liquidity amidst diversion flows from fixed income to equities.

As per Bloomberg data, Pakistan’s market was the 8th best performer in FY25 with a total USD return of 57%. However, over the cumulative two-year period (FY24 and FY25), it ranked as the best-performing market in the world.Pakistan Market – Selected Budget Changes

Continuation of positive momentum in stock market has been accompanied by healthy trading activity with average traded volumes in the Cash/Ready market increased by 37% YoY to an average of 631mn shares/day. The average traded value also jumped by 80% YoY to Rs28bn/day during FY25.

The average volumes in the Futures market also increased by 26% YoY to 196mn shares/day. The average traded value of the same increased by 60% YoY to Rs10.1bn/day.

In FY25, foreign Corporates turned Net Sellers of US$321mn compared to Net Buying US$152mn in FY24. Reversal of positive trend was due to FTSE rebalancing related foreign selling during the year.

On local side, mutual funds were major buyers with net buying of US$227mn followed by Companies and Individual with net buying of US$91mn and US$66mn, respectively. However, Banks, Insurance and Brokers remained sellers of US$49mn, US$19mn and US$18mn respectively in FY25.

Key stocks of KSE-100 index that outperformed market in FY25 included Bannu Woollen Mills (BNWM) up 226%, National Bank (NBP) up 214%, and GlaxoSmithKline Pakistan (GLAXO) up 179%.

Key sectors that outperformed market during the year included Vanaspati, Jute, and Woolen.

Following are few of the key factors to look out for in FY26;

IMF Reviews in FY26: Successful IMF program reviews in FY26 would be key in re-rating the market multiples to historic mean. We believe, Govt. may face some pressure in achieving revenue targets of FY26. However, in our view, Govt. will pass the IMF reviews timely by meeting the primary balance through cutting development and other non essential expenditures.

Credit Rating Upgrade and subsequent launch of Eurobond and Sukuk: We expect credit rating upgrade in FY26 as Government is also quite vocal on this and has been meeting with the rating agencies, as per news. The rating upgrade in our view is quite likely as debt ratios and FX reserves are showing improvements. With the credit rating upgrade to “B” category, Pakistan may resort to international bond market by issuing Eurobond and Sukuks which will further support FX reserves and strengthen the debt maturity profile of the country.

Regional geopolitical developments & Pakistan USA Relationships: Any developments in Pakistan–USA relations under the Trump administration, along with regional tensions, could significantly influence market sentiment. Currently, a ceasefire is in place between India and Pakistan; however, any escalation could negatively affect investor confidence. Additionally, any further conflict in the Middle East is likely to have broader macroeconomic implications for Pakistan  amidst Pakistan’s dependency on oil imports and could weigh on market performance.

Commodity Prices: Brent oil prices have declined from an average of US$84/bbl in FY24 to US$74/bbl in FY25 and are currently trading at US$68/bbl. The recent escalation of war in middle east have significantly increased oil prices to over US$75/barrel. The petroleum group constitutes a major portion of Pakistan’s imports, and the outlook for Pakistan’s economy will remain closely tied to the trend in global commodity prices going forward.

Privatization of PIAA/Discos and Reko Diq Investment: Some other events that may shape market direction would be like any breakthrough on front of privatization of PIAA, DISCOs, First Woman Bank, HBFC, Roosevelt Hotel and GENCOs, and materialization of Reko Diq Investment plan from KSA based investors.

FX Reserves: Foreign exchange reserves held by the SBP stood at US$9.065bn for the week ending Jun 20, 2025. However, in the last 10 days, the SBP received foreign inflows of approx. US$4.9bn, which will raise reserves to around US$14bn, in line with the IMF target. For the next year FY26, IMF projects SBP reserves to reach US$17.7bn and any shortfall in this target could negatively impact macroeconomic stability and investor sentiment.

Pakistan market is currently trading at a 2026E PE of 5.7x vs historical average PE of 7.0x.

We mentioned in our strategy report dated Nov 16, 2024, that successful passage of budget FY26 in line with IMF guidelines will serve as catalyst in re-rating of market multiple to historic average of 7x.

We expect KSE 100 to reach 160,000 Index level by Jun 2026, a return of 29%. Out of this, 11% is through PE re-rating, 9% earnings growth and 9% dividend yield.

Our Top picks are Oil & Gas Development (OGDC), Habib Bank (HBL), Lucky Cement (LUCK), Bank Alfalah (BAFL), Systems Limited (SYS), Pakistan State Oil (PSO), Sazgar Engineering (SAZEW), Fauji Cement (FCCL), International Steel (ISL) and Nishat Mills (NML).