Pakistan stocks drop 9% from January peak in broad selloff

Pakistan’s benchmark stock index has fallen about 9% from its Jan. 23 peak, including an intraday slide of roughly 2,700 points on Tuesday, in a broad-based selloff that has unsettled investors after a strong rally earlier this year.

The index reached a high of 189,166 points, with market capitalization of PKR 21,219 billion. On Tuesday, it dropped to 173,150 points, bringing market capitalization down to PKR 19,666 billion — an erosion of PKR 1,553 billion.

The decline in the KSE-100 index has affected cyclical stocks and index heavyweights, reflecting what analysts describe as a sentiment-driven correction rather than a shift in underlying fundamentals.

Investors had expected a 50-100 basis point rate cut in the latest monetary policy decision, but the central bank held rates steady, dampening market expectations. Security-related concerns surrounding the Reko Diq mining project also weighed on sentiment.

The selloff comes amid a broader global risk-off tone, with geopolitical caution linked to tensions involving Iran contributing to investor nervousness. Market participants also cited profit-taking after a powerful rally into late January as a key factor behind the pullback.

Historical patterns

An analysis of KSE-100 data since 2000 shows 444 instances where the index fell 10% or more within a month, a pattern analysts refer to as a “fast decline” regime.

Historically, such corrections have often been followed by positive returns over longer horizons. One month after a fast decline, the index posted an average return of 1.8%, with gains 63.7% of the time. Over three months, the average return was 5%, positive in 61.9% of cases.

Six-month returns averaged 13.1%, with gains in 70.9% of instances. One-year returns averaged 25.7%, positive 73.2% of the time. Over three years, the average cumulative return was 80.6%, while five-year cumulative returns averaged 189.2%, with gains in 93.5% of cases.

The data indicate that while short-term volatility can persist, both the likelihood and magnitude of gains have historically increased over longer holding periods.

Outlook

Analysts said headline-driven declines tend to be temporary, with corporate earnings capacity and macroeconomic stabilization playing a more decisive role over time.

They cautioned that their constructive stance would be reassessed in the event of a material breakdown in Pakistan’s IMF program execution or signs of sustained macroeconomic instability. For now, they do not expect a significant interest rate hike or sharp currency depreciation in the near term.

While higher taxation could lead to earnings adjustments, analysts said the risk of a major deterioration in profits among index heavyweights remains limited.

Market strategists argue that the current correction resembles a sentiment reset rather than a structural shift in fundamentals. Although markets rarely signal a clear bottom, past episodes of rapid, sentiment-driven drawdowns have historically rewarded investors who remained invested through volatility.