KSE-100 set for rally as possible rate cut, trade talks spark optimism

Pakistan’s equity market is poised for a sharp recovery in the coming week as investors anticipate a policy rate cut and positive developments on trade negotiations with the United States. After a week of mixed sentiment and mild profit-taking, optimism is resurfacing on the back of stronger macroeconomic signals and improving investor confidence.

The benchmark KSE-100 index ended the previous week with a modest gain of 610 points, closing at 139,207, up 0.4% from 138,597. Though profit-taking midweek trimmed some early gains, the broader trend remains upward, driven by expectations surrounding the Monetary Policy Committee (MPC) meeting scheduled for July 30, where analysts widely anticipate an interest rate cut.

Monetary easing expected to drive momentum

“The most significant driver for the coming sessions will be the upcoming monetary policy announcement,” said Salman Ahmad, head of retail at Aba Ali Habib Securities. “We expect a minimum 50 basis points cut, with room for a 100bps reduction given the subdued inflation, a current account surplus in June, an upgrade from S&P, and a stable reserve position.”

He added that rate-sensitive stocks, particularly in the textile, cement, and steel sectors, are likely to see renewed buying interest as lower interest rates would ease borrowing costs and stimulate industrial activity.

Market expectations of a rate cut were reinforced by last week’s treasury bill auction, where the State Bank of Pakistan (SBP) raised PKR 424.4 billion—more than double the target of PKR 200 billion—while yields dropped by 10 to 39 basis points across all tenors.

Jibran Sarfraz, equity analyst, noted, “The decline in cutoff yields clearly signals market anticipation of monetary easing. Investors are expected to rotate into cyclical sectors like textiles, cement, and steel, which are typically the biggest beneficiaries of a rate cut.”

He added that an interest rate reduction would not only lift domestic investor sentiment but also improve the government’s case for raising funds in global capital markets.

Earnings season and sector outlook

The ongoing June quarter corporate earnings season is also expected to support market momentum. According to analysts at Arif Habib Limited, select scrips will remain in focus amid expectations of strong results.

“We anticipate a positive tone to prevail in the market next week, supported by earnings announcements and the likely monetary policy action,” the firm noted.

Salman Ahmad also highlighted the banking sector as a potential outperformer. “We’ve already seen several banks rebound strongly in the recent rally, and upcoming financial results could reinforce that trend,” he said.

External developments supporting sentiment

Investor mood has also been buoyed by external developments. S&P Global recently upgraded Pakistan’s credit rating to ‘B-’ with a stable outlook, citing macroeconomic stabilization and reform progress. Additionally, ongoing discussions between Pakistan and the U.S. government over tariff reductions are being closely watched.

“If the negotiations lead to lower tariffs, it could significantly boost textile exports, directly benefiting listed companies in the sector,” Ahmad said.

He further added that with rising trading volumes and improving valuations, Pakistan’s capital market could soon be reconsidered for reentry into the MSCI Emerging Markets Index, a move that would attract greater foreign investor participation.

During the week, positive contributions to the index came from investment banks (+408 pts), E&Ps (+213 pts), FMCGs (+124 pts), auto assemblers (+59 pts), and power (+52 pts). On the flip side, sectors like miscellaneous (-149 pts), banks (-71 pts), leather (-54 pts), pharmaceuticals (-35 pts), and textiles (-31 pts) weighed on performance.

Average daily trading volumes stood at 635.5 million shares, marginally down 0.4% week-on-week, while the average daily traded value declined 20.2% to $100.5 million.

With strong macroeconomic cues, ongoing earnings season, and potential breakthroughs on the external front, the Pakistan Stock Exchange is expected to maintain its positive trajectory in the near term.

However, analysts caution that sustained momentum will depend on actual monetary policy decisions, global market stability, and further progress on structural reforms.

An analyst from AKD Securities said that the market is expected to remain positive in the coming weeks, with the upcoming MPC and corporate results remaining in the limelight.

The KSE-100 is anticipated to sustain its upward trajectory, with a target of 165,215 points by December, primarily driven by strong earnings in fertilizers, sustained ROEs in banks, and improving cash flows of E&Ps and OMCs, benefiting from falling interest rates and economic stability.