Investor optimism returned in full force at the Pakistan Stock Exchange (PSX) as the benchmark KSE-100 index gained 1,581.77 points during the first session on Friday, a day after the National Assembly passed the federal budget for FY25-26. The index closed at 123,628.23 points, up 1.3 percent from the previous close of 122,046.46.
The market rebound comes after a temporary dip on Thursday and reflects renewed confidence among investors, buoyed by both domestic and international developments. The passage of the Rs17.57 trillion federal budget has sent positive signals to the financial markets, particularly due to the absence of overly aggressive revenue-generating measures and the inclusion of limited relief for salaried individuals and businesses.
Awais Ashraf, Director Research at AKD Securities, noted that investors welcomed the budget’s relatively business-friendly tone. “The passage of the federal budget with the absence of aggressive incremental revenue measures and slight relief for salaried and business is also well received by the investors,” Ashraf stated.
Adding to the market momentum is the easing of geopolitical risks. The ceasefire between Iran and Israel has diverted investor attention back toward domestic economic indicators, which are showing promising signs. The improving macroeconomic outlook, driven by a notable reduction in inflation and a record current account surplus, is reinforcing expectations of a decline in interest rates. Analysts anticipate that interest rates may fall into single digits within the upcoming fiscal year.
Ashraf further elaborated that the market rally is being driven by stocks tied to the power and oil & gas exploration sectors, along with companies in related supply chains. These segments are drawing interest on the back of expectations that the government will take decisive action on circular debt resolution before the fiscal year concludes.
“The rally is likely to sustain as monetary policy remains on a softening trajectory,” said Ashraf. “Inflation is projected to dip below the FY25 estimate of 4.5 percent in FY26, reinforcing the case for continued rate cuts.”
Friday’s gains reversed the correction seen a day earlier when investors engaged in profit-taking after two strong days of upward movement. That brief pause came after a significant 6,079-point rally earlier in the week, fueled by geopolitical developments, including the ceasefire agreement announced by former U.S. President Donald Trump to end a 12-day conflict between Israel and Iran.
The market’s swift recovery underscores the sensitivity of investor sentiment to both fiscal policy decisions and global events. With the budget now in place and geopolitical risks temporarily eased, the outlook appears stable for the short term. Market participants will be watching closely for monetary policy updates, inflation trends, and any new signals regarding reforms in the energy and financial sectors.
For now, the PSX’s upward trajectory signals investor optimism that fiscal discipline, macroeconomic improvement, and regulatory clarity could together foster a more stable environment for growth and capital market activity in the months ahead.