Security fears, tax ruling trigger historic slide in Pakistan stocks

Pakistan’s stock market has suffered a steep February sell-off that erased trillions of rupees in investor wealth and challenged the government’s claims of economic stabilization.

The sharp reversal follows a record-setting rally that officials had cited as evidence of recovery under Prime Minister Shehbaz Sharif.

In the recent episode of “On My Radar,” Kamran Khan described February as a “bloody month” for the market, saying the downturn punctured what he called the government’s “vibrant economy” narrative.

The benchmark index at the Pakistan Stock Exchange reached a historic high of 189,166 points on Jan. 23. Within weeks, it had fallen to around 165,000 points, a drop of more than 24,000 points.

Market capitalization declined by roughly 2.4 trillion rupees during the slide, according to figures cited on the program. Khan characterized the downturn as more than routine volatility, calling it a collapse of investor confidence.

The steepest single-day decline came on Feb. 19, when the index fell 6,683 points. Trading screens were awash in red, reflecting broad-based losses across sectors. Analysts point to several factors behind the sell-off.

A key trigger was a court decision on Jan. 27 related to the government’s super tax, which applies to large corporations. The ruling heightened concerns about shrinking corporate profits and dampened sentiment in heavyweight sectors.

Shares of Fauji Fertilizer Company came under pressure after reporting results that fell short of market expectations, contributing to the index’s decline. Security concerns added to investor unease.

On Jan. 29, reports emerged of coordinated militant attacks in multiple cities in Balochistan. The province is home to major mineral resources and large-scale development projects seen as vital to Pakistan’s economic future.

Uncertainty also swirled around the $7 billion Reko Diq mining project, which has been viewed as a potential magnet for foreign investment. Reports of security reviews and possible delays heightened concerns about implementation risks.

Foreign investors turned cautious, and local institutions reduced exposure, accelerating the downward momentum. Monetary policy also disappointed the market.

Investors had widely expected the State Bank to cut interest rates at its Jan. 26 meeting. Instead, policymakers kept the benchmark rate at 10.5%, citing inflation and external pressures. The decision undercut hopes that cheaper borrowing costs would fuel further gains in equities. Global developments compounded domestic strains.

Rising tensions between Iran and the United States stirred fears of broader regional instability and potential increases in oil prices. For Pakistan, a heavily import-dependent economy, higher oil prices could stoke inflation and strain foreign exchange reserves.

Investors worried that renewed inflationary pressure would limit the central bank’s room to ease policy in the near term.

Political and security uncertainties added to the fragile environment. Escalating violence in Khyber Pakhtunkhwa and concerns surrounding former Prime Minister Imran Khan’s health contributed to broader unease.

Pakistan’s sudden military action in Afghanistan, following cross-border tensions, also rattled markets already affected by disruptions in trade with its western neighbor.

Trading volumes thinned as buyers stepped back, amplifying price swings and deepening losses.

Even relatively positive corporate earnings failed to halt the slide. Results from National Bank of Pakistan and United Bank Limited were broadly stronger, but their shares still faced pressure, and the index shed another 1,632 points in subsequent sessions.

The government has repeatedly cited the earlier rally as proof that its economic reforms were restoring investor trust after years of crisis.

But the February downturn has raised questions about the durability of that recovery. Market participants are now watching closely for developments tied to Pakistan’s program with the International Monetary Fund, as well as any further policy steps aimed at stabilizing the economy.

For many investors, the focus has shifted from chasing gains to preserving capital. Whether the market can regain its footing may depend on security improvements, clarity on tax policy, and evidence that inflation is firmly under control.

Until then, analysts say, volatility is likely to remain a defining feature of Pakistan’s financial landscape.