PSX expected to hit 160,000 points-mark in FY26

As Pakistan enters fiscal year 2025-26 (FY26), analysts project that macroeconomic developments will drive strong momentum in the equity market.

The benchmark KSE-100 index is expected to reach 160,000 points by June 2026, indicating a 29% upside from current levels, with potential re-rating by key credit agencies on the horizon.

IMF reviews seen as pivotal for market re-rating

Market participants view the successful completion of International Monetary Fund (IMF) program reviews in FY26 as a critical factor for re-rating valuation multiples back to the historical average of 7.0x.

While ambitious revenue targets remain a challenge, analysts anticipate the government will focus on expenditure rationalization, particularly through cuts in non-essential and development spending, to maintain the primary balance required under IMF terms.

Credit rating upgrade and international financing

A credit rating upgrade is expected during FY26, driven by improving debt sustainability and a buildup in foreign exchange reserves.

The government has been engaging with global rating agencies and signaling its readiness to return to international bond markets through Eurobond and Sukuk issuances.

A successful upgrade to the 'B' rating category would enhance Pakistan's financing flexibility and improve its debt maturity profile.

Geopolitical risks remain a factor

Investor sentiment continues to hinge on geopolitical dynamics, especially developments in Pakistan-U.S. relations under the Trump administration.

Although a ceasefire with India is currently in effect, any escalation could unsettle markets.

Additionally, ongoing tensions in the Middle East may affect Pakistan’s economy due to its reliance on oil imports.

Oil prices impact inflation and external balances

After falling from $84 per barrel in FY24 to $68 per barrel, Brent crude briefly spiked above $75 amid renewed regional conflict.

With petroleum products forming a major share of Pakistan's import bill, inflation and external account pressures will remain sensitive to global commodity price fluctuations, according to a report from Topline Securities.

Privatization efforts and strategic investments

Privatization activity is expected to shape investor sentiment in FY26. Progress on selling public-sector assets, including Pakistan International Airlines (PIA), power distribution companies (DISCOs), the House Building Finance Corporation (HBFC), First Women Bank, the Roosevelt Hotel, and thermal power generation companies (GENCOs), could unlock fiscal space.

Anticipated investment inflows from Saudi Arabia in the Reko Diq mining project may also support fiscal and investor confidence.

Foreign exchange reserves strengthen

As of June 20, the State Bank of Pakistan’s foreign exchange reserves stood at $9.065 billion. Recent foreign inflows totaling $4.9 billion are expected to boost reserves to around $14 billion, meeting IMF targets.

The IMF projects reserves to reach $17.7 billion by the end of FY26; any deviation from this goal could trigger market instability.

Equity market outlook: KSE-100 aiming for 160,000 points

Pakistan’s equity market is currently trading at a forward price-to-earnings (P/E) ratio of 5.7x, below the historical average of 7.0x. Analysts believe that with continued fiscal discipline, compliance with IMF benchmarks, and improved investor sentiment, the KSE-100 index could climb to 160,000 points by June 2026.

The expected growth is underpinned by an 11% re-rating in P/E multiples, 9% earnings growth, and 9% dividend yield.

This bullish forecast hinges on macroeconomic reforms, currency stability, and global market trends.