Pakistan’s stock market expected to surge 26% by 2026 amid reform hopes

Pakistan’s benchmark KSE-100 Index is projected to climb to 203,000 points by December 2026, offering a total return of around 26%, including a dividend yield of roughly 7%, according to a new market outlook from leading brokerage firm Topline Securities.

In a comprehensive research update, Topline said its index target is based on an expected forward price-to-earnings (P/E) multiple of 7.6 times for 2027, compared to a current multiple of about 6.8x, and anticipated earnings growth of around 7%. The firm also expects the P/E multiple to re-rate to 8.0x by June 2027.

Key assumptions and market drivers

Topline’s bullish projection is underpinned by a set of structural and policy assumptions, including:

• Deferred LNG cargoes from QatarEnergy easing external account pressures.
• No new accumulation of circular debt in the gas and power sectors.
• Clearance of legacy circular debt in the gas sector.
• Privatisation of Pakistan International Airlines (PIA).
• Launch of Eurobond or Sukuk issuance alongside an improved credit rating.
• A revised National Finance Commission (NFC) formula benefiting provinces.
• Improved bilateral relations with India and Afghanistan.
• Financial close of the Reko Diq project.
• Possible relief measures for exporters and industries in the FY27 federal budget.

Topline added that the stock market’s momentum could be supported by local investors reallocating funds from low-yield fixed-income instruments to equities, as alternative asset classes such as foreign currency, gold, and real estate remain constrained or less attractive.

Valuation and leverage indicators

On valuations, the report highlighted that Pakistan’s market-cap-to-M2 ratio stands at around 47%, compared with an average of 53% during FY12–15 — a period with comparable interest rates of 10–12%. The market-cap-to-GDP ratio also remains below its historical average, suggesting further room for re-rating.

In terms of leverage, margin trading (MTS) is currently just 0.64% of total market capitalization (versus a nine-year average of 0.31%) and 2.2% of free-float market cap (versus a 1.05% average). The spread between margin rates and KIBOR, at 1.9%, is lower than the 20-year average of 3%, indicating that liquidity conditions remain accommodative.

Economic outlook and risks

For FY26, Topline forecasts GDP growth of 3–3.5%, rising to 3.75–4.25% in FY27, driven by stronger agricultural output (around 4.4%). Inflation is projected at 6.5–7.5% in FY26 and 7.5–8.0% in FY27, assuming a 7% rent increase, 6% rise in electricity prices, 8% hike in gas tariffs, and Brent crude averaging US$65 per barrel, with the PKR/USD rate near Rs 299.

The current account deficit is forecast at 0.25–0.75% of GDP (US$ 2.5–3.5 billion), with imports rising 13%, exports slipping 1%, and remittances growing 7.5% to US$ 41.2 billion. The fiscal deficit is estimated at 4.6% of GDP, slightly above the government’s 3.9% target, with FBR revenues projected at Rs 13.6 trillion (up 16%), versus a target of Rs 14.1 trillion (+20%). The exchange rate is expected to hover between Rs 285–295 by end-2026.

Investor sentiment and sectoral outlook

A Topline poll of local institutional and family-office investors found that 37% expect the KSE-100 to remain between 160,000–180,000 by December 2026, 32% see it between 180,000–200,000, and 25% project it above 200,000. Only 7% expect it to stay below 160,000.

About 68% of respondents believe the shift from fixed income to equities will continue. The most preferred sectors were Cement (65%), Exploration & Production (58%), and Oil Marketing Companies (46%), while underweighted sectors included Textiles (46%), Power Generation (37%), and Steel (37%).

Outlook summary

Topline Securities’ bullish forecast signals optimism that structural reforms, valuation upside, liquidity support, and investor repositioning could drive Pakistan’s equity market higher over the next two years. However, the report cautioned that meeting these targets depends on sustained reform execution and a stable external environment.