Pakistan stocks likely to rally on lower inflation, exporters’ incentives

Pakistan’s stock market is expected to regain positive momentum in the coming week as easing inflation, improving economic indicators and recently announced government relief measures help rebuild investor confidence after a volatile period, analysts said.

The benchmark KSE-100 Index is likely to draw support from the upcoming inflation reading, with headline CPI expected to come in around 5.8% year-on-year, alongside ongoing corporate earnings announcements that could provide upside if results exceed expectations.

The index is currently trading at a price-to-earnings ratio of about 9.3 times, offering an estimated dividend yield of 5.3%, levels that analysts describe as attractive.

Market participants also point to recent policy signals as supportive of sentiment.

The government’s decision to reduce the Export Finance Scheme (EFS) is expected to ease financing costs for exporters and support industrial activity, while cuts in power tariffs should lower operating expenses and enhance competitiveness, particularly in energy-intensive sectors.

Together, these measures are seen as reinforcing the outlook for exports and contributing to a more sustainable economic recovery.

The forward-looking optimism follows a weak performance in the previous week, when the KSE-100 Index fell 2.6% week-on-week to close at 184,174 points.

Investor sentiment deteriorated after the central bank’s Monetary Policy Committee kept the policy rate unchanged, defying market expectations of a 50 to 100 basis-point cut. Rising geopolitical tensions further weighed on confidence.

The market staged a modest rebound in the final trading session after the government announced relief measures for industry, including a 300-basis-point reduction in the EFS rate and a cut in wheeling charges by PKR 4.04 per unit.

In a separate development, the Federal Constitutional Court upheld the legality of the super tax, overturning earlier high court rulings. The decision is expected to bolster government revenues, with the Federal Board of Revenue projected to collect more than PKR 300 billion in additional revenue in fiscal year 2026.

Weekly review

Trading activity softened during the week, with average daily volume on the KSE All-Index declining 24% to 859 million shares. Karachi Electric, Hascol Petroleum and WorldCall Telecom led turnover by volume. Total market capitalization of the KSE All Index fell 1.85% to $70.9 billion, with notable declines in fertilizer, chemical and insurance sectors.

Foreign investors were net buyers of Pakistani equities during the week, purchasing $17.8 million worth of shares. Selling was concentrated in banks, fertilizers and other sectors, while technology stocks also saw modest foreign outflows.

On the domestic side, mutual funds and banks were net sellers, while individual investors emerged as the largest buyers.

The major selling was observed in other sectors ($7.48 million), banks ($4.77 million) and fertiliser ($3.02 million), while a net seller was seen in technology ($0.52 million).

On the local side mutual funds ($22.67 million) and banks / DFI ($11.81 million) were the major seller, while Individuals were the major buyers ($25.71 million).

Sector performance remained under pressure, with fertilizers, investment banks and cement stocks collectively dragging the index lower by more than 3,200 points during the week.

Investor sentiment was further dampened by concerns that the court’s super tax ruling could weigh on corporate profitability, foreign direct investment and dividend payouts, particularly in large industrial groups.

Despite the recent downturn, analysts say the combination of moderating inflation, policy support for exporters and relatively attractive valuations could help stabilize the market and set the stage for a recovery in the days ahead.