KARACHI: The Pakistan Stock Exchange (PSX) delivered one of its most remarkable performances in recent history during the fiscal year 2025 (FY25), with the benchmark KSE-100 Index surging by an impressive 58.6 percent in rupee terms and 55.5 percent in USD terms, closing at a record 124,379 points.
Over the last two fiscal years (FY24 and FY25), the index has cumulatively soared by a staggering 203 percent in Rupee and 206 percent in USD, making it one of the best-performing stock markets globally over this period, the brokerage house reported.
Market analysts attribute this extraordinary rally to a combination of aggressive monetary easing, improved macroeconomic fundamentals, enhanced investor sentiment, and consistent support from the International Monetary Fund (IMF) program.
The State Bank of Pakistan (SBP) led the way by reducing the policy rate from 21.5 percent to 11 percent, marking one of the most aggressive monetary easing cycles in the country’s history.
According to data FY25 witnessed record market participation, with average daily trading volumes in the ready market climbing 37 percent year-on-year (YoY) to 631 million shares, while average daily traded value surged by 80 percent YoY to Rs 28 billion. The futures market also saw robust activity, with average volumes up 26 percent YoY to 196 million shares and traded value increasing 60 percent YoY to Rs10.1 billion.
On the economic front, Pakistan posted a current account surplus of USD 1.8 billion during the first eleven months of FY25, a sharp reversal from a USD 1.57 billion deficit in the same period of the previous year.
The fiscal deficit narrowed to 5.6 percent of GDP, down from 6.4 percent a year earlier, while as per government estimates, GDP growth is also expected to pick up to 2.68 percent, pushing the size of the economy to an all-time high of USD 411 billion. Inflation cooled considerably as well, with average annual CPI inflation falling to 4.61 percent during July-May FY25 from 24.52 percent a year earlier.
In addition, Fitch Ratings upgraded Pakistan’s sovereign credit rating from CCC+ to B-, following successful IMF reviews for its USD 7 billion Extended Fund Facility and USD 1.3 billion Resilience and Sustainability Facility. This contributed to improved market liquidity and attracted positive investor sentiment throughout the year. Moreover, MSCI’s semi-annual review added five Pakistani companies to its Frontier Market Index, boosting the country’s estimated weight from 3.7 percent to around 6.1 percent.
On the other hand, Topline Research noted that despite geopolitical tensions, including flare-ups between India and Pakistan in May and between Iran and Israel in June, the stock market staged powerful recoveries following ceasefire agreements. Brent oil prices fluctuated from an average of USD 84 per barrel in FY24 to USD 74 in FY25, although the Middle East conflict recently pushed prices above USD 75 per barrel, a trend that could have implications for Pakistan’s import bill going forward.
In terms of asset class performance, equities decisively outperformed alternatives. The KSE-100 Index’s FY25 return of 55.58 percent outshone Gold (47.56 percent), T-Bills (12.68 percent), Defense Saving Certificates (12.61 percent), Bank Deposits (12.60 percent), PIBs (11.97 percent), and the modest PKR/USD depreciation of 1.91 percent. Arif Habib Limited research noted that this once again reaffirms Pakistan equities as the most rewarding asset class for long-term investors.
The year also marked a revival in capital market fundraising, with three successful Initial Public Offerings (IPOs) raising a total of PKR 4.19 billion. These included BF Biosciences Ltd. in Pharmaceuticals, Zarea Ltd. in Technology & Communications, and Barkat Frisian Agro Ltd. in Food & Personal Care, reflecting a broader investor appetite across sectors amid stabilizing economic fundamentals.
Sector-wise, Technology, Banks, Cement, Power, and Refineries dominated trading volumes, while the Exploration & Production, Cement, Oil Marketing Companies (OMCs), Banks, and Automobile Assemblers sectors led in terms of traded value. Top traded scrips included WorldCall Telecom (WTL), K-Electric (KEL), Cnergyico (CNERGY) and Bank of Punjab (BOP).
In terms of performance, Leasing, Woollen, Investment Banks, OMCs, and Fertilizer sectors posted triple-digit percentage gains, while Automobile Parts, Vanaspati, Synthetics, and Engineering recorded losses.
Foreign investors, however, turned net sellers in FY25, offloading USD 321 million worth of shares, reversing a USD 152 million net buying position in FY24. This was largely driven by FTSE rebalancing-related outflows and cautious global risk sentiment amid persistent geopolitical uncertainties and elevated global interest rates, noted Topline Securities. Regionally, similar net foreign selling was observed in Taiwan, South Korea, India, Malaysia, and Vietnam.
On the domestic front, mutual funds emerged as the largest buyers with net purchases of USD 227 million, followed by companies (USD 91 million) and individual investors (USD 66 million). Banks, insurance firms, and brokers remained net sellers.
Looking ahead to FY26, analysts at both Arif Habib Limited and Topline Research foresee continued positive momentum, projecting real GDP growth of 3.34 percent, driven largely by an expected rebound in agriculture, complemented by steady performance in the services and industrial sectors. Inflation is forecast to rise modestly to 6.10 percent, reflecting a high base effect and gradually recovering domestic demand. Nonetheless, monetary policy is expected to remain supportive, with the SBP likely to cut the policy rate by another 100 basis points to 10.0 percent in late July’s meeting.
A potential credit rating upgrade in FY26 and planned Eurobond and Sukuk issuances could also strengthen the country’s external position further. “We believe a successful IMF program review and eventual rating upgrade would serve as a key catalyst for market re-rating,” Topline Research noted.
Brokerages agree that Pakistan’s stock market remains undervalued, trading at a forward price-to-earnings ratio of 5.7x against a 10-year average of 7.0x, with an attractive dividend yield of 8.4 percent versus a historical average of 6.5 percent. A stable political environment, adherence to IMF conditions, and prudent macroeconomic management will be critical to sustaining upward trajectory into FY26, they added.
Copyright Business Recorder, 2025
