Progress on Iran-U.S. ceasefire to set PSX direction next week

Pakistan's stock market faces a pivotal week ahead, with analysts saying the KSE-100 Index's direction will be shaped by developments in US-Iran ceasefire talks, with rising fuel prices and accelerating inflation expected to act as headwinds.

What will drive the KSE-100 next week?

An analyst from Arif Habib Limited said next week's performance will depend primarily on geopolitical developments, with a potential US-Iran agreement expected to boost investor confidence.

The IMF Executive Board's formal approval of the $1.2 billion disbursement under the EFF and RSF programs will also serve as a key positive catalyst.

Both factors are expected to play a decisive role in shaping market sentiment.

An analyst at Spectrum Securities cautioned that the market is likely to remain cautious amid uncertainty about the sustainability of the U.S.-Iran ceasefire.

Global equity markets, oil prices, and trade dynamics remain highly sensitive to the direction of those negotiations. Any breakdown in talks could quickly reverse recent gains.

AKD Securities has also identified the U.S.-Iran negotiations as the two pivotal near-term catalysts for market direction.

The brokerage added that continued softening in oil prices would act as a supportive trigger.

AKD noted that the market trades at an attractive price-to-earnings ratio of 7.5 and forecast the KSE-100 to reach 263,800 by December 2026.

How did the KSE-100 perform in the previous week?

The KSE-100 gained 8,122 points during the week ended May 9, settling at 171,116, posting gains in four out of five sessions.

The rally was driven by optimism over a potential U.S.-Iran ceasefire and progress on the IMF program.

However, sentiment soured on the final day when Iran accused the US of violating the ceasefire by targeting two ships at the Strait of Hormuz and attacking civilian areas, raising doubts about a deal to end the 10-week war.

How are rising fuel prices and inflation weighing on the market outlook?

Continuously rising petroleum prices are expected to dampen market performance by increasing production costs and compressing profits of listed companies.

The weekly Sensitive Price Index rose 15.16% year-on-year, and April's Consumer Price Index hit 10.9%, the first double-digit reading in 21 months. Higher diesel prices, in particular, are pushing up manufacturing and logistics costs across industries.

The State Bank of Pakistan's Monetary Policy Committee warned that the energy price shock is already seeping into core inflation through higher transport fares.

The MPC assessed that inflation may push further into double digits in the coming months before easing. Food inflation, supported by adequate supplies, is expected to offset some of the headline impact.