Pakistan stock market to stay resilient despite brief corrections

Pakistan's stock market is expected to witness brief periods of downward correction, but strong economic indicators may keep the index resilient. Analysts predict fresh gains led by key sectors like banking, cement, autos, oil & gas, and fertilizers, as investor confidence continues to build.

The Pakistan Stock Exchange (PSX) sustained its bullish trend in the second week of July 2025, with the KSE-100 Index gaining 2%, or 2,351 points, closing at 134,299. It marked the highest weekly close in nearly three years.

The rise was led by key sectors, including commercial banks, which contributed 1,329 points, followed by cement (304 points), auto assemblers (150 points), textiles (147 points), and pharmaceuticals (124 points). The upward push was supported by a surge in vehicle sales ahead of a General Sales Tax (GST) hike from 12.5% to 18%, effective July 1, 2025.

Analysts said economic indicators such as record-high remittances of $38.3 billion and expectations of lower interest rates helped bolster investor sentiment.

Ali Nawaz, CEO of Chase Securities, said the PSX is showing “resilience supported by improving macroeconomic indicators and renewed investor confidence.”

He added that banking, energy, and cement sectors are likely to benefit from easing inflationary pressures and a stable monetary policy outlook.

Jibran Sarfraz, equity analyst, said the market may undergo “a volley of downward correction” as the index hit record intraday highs. “Some trimming is expected, which will be a healthy correction,” he noted.

Earnings season and foreign interest

The start of the FY26 financial year has begun positively, with equities remaining upbeat ahead of the corporate earnings season. Salman Ahmad, head of retail investors at Aba Ali Habib, said the market expects “appreciable gains on the back of corporate numbers” from banks, cement, auto, and fertilizer sectors.

Foreign selling totaled $5.76 million this week, down from $15.33 million last week. Average daily trading volume stood at 947.8 million shares (down 2%), while value traded dropped 6.3% to $136.5 million.

According to analysts at Arif Habib Ltd., the KSE-100 Index is trading at a forward price-to-earnings ratio of 6.8x for 2026, compared to its 10-year average of 8.0x. It also offers a dividend yield of approximately 7.4%, well above the historical average of 6.5%.

Tariff talks and exporters

Market watchers are closely monitoring Pakistan’s ongoing trade negotiations with the U.S. on import tariffs. Officials expect a reduction in the 29% duty announced in April, which could benefit exporters, particularly in textiles.

An analyst at Spectrum Securities said UBL kicked off the earnings season with its Q2 results on Friday. Most earnings announcements are expected later in July.

Investors also remain optimistic about the government’s privatization drive and potential foreign direct investment inflows. Salman Ahmad said the resolution of a PKR 1.275 trillion circular debt issue this month could boost the Exploration and Production (E&P) sector.

He also noted that new taxes on mutual funds may redirect liquidity into the equity market, offering further support to equities in the near term.