Investor sentiment surged following the unveiling of Pakistan’s federal budget for FY26, propelling the Pakistan Stock Exchange (PSX) to historic highs. The benchmark KSE-100 index climbed by a remarkable 2,328 points, closing at an unprecedented level of 124,352 points, marking the highest closing figure in the exchange’s history.
This bullish momentum came in the wake of fiscal measures that many investors interpreted as market-friendly, particularly due to the government’s decision to leave capital gains tax and dividend income tax rates unchanged—contrary to widespread expectations of an increase. The rally was further supported by a reduction in super tax, which is seen as an incentive for corporate profitability, and a hike in tax on bank deposits that may redirect liquidity into equity markets.
Brokerage firm Topline Securities noted earlier in the day that the status quo on key tax rates offered relief to market participants who had braced for potentially adverse fiscal adjustments. The firm also highlighted that the budget, aligned with the International Monetary Fund’s reform framework, provides clarity for investors, reducing uncertainty and paving the way for a potential re-rating of market valuations.
According to Topline Securities’ projections, the successful passage of the FY26 budget aligned with IMF directives may elevate the market’s price-to-earnings (PE) multiple back toward its historical average of 7x. Currently, the market is trading at a 2026 estimated PE of 5.2x. Their base case index target stands at 127,000 by December 2025, with the potential for the index to reach 150,000 contingent on continued political and geopolitical stability, and a favorable IMF review scheduled for September 2025.
Market activity on the day reflected robust investor interest. A total of 1.04 billion shares were traded, almost doubling the previous session’s volume of 593 million shares. The total value of shares traded rose sharply to Rs. 46.7 billion, up from Rs. 21.8 billion in the prior session, indicating a strong flow of capital into equities.
Out of 477 companies that participated in the trading session, 282 recorded gains, 157 registered losses, while 38 companies’ share prices remained unchanged. This broad-based rally across sectors highlights growing confidence in the macroeconomic outlook and fiscal direction.
The PSX’s performance serves as a tangible indicator of investor approval of the new budget’s provisions, particularly those that favor stock market investments. The stability in taxation for equities, combined with broader fiscal discipline and reform signaling, has created a favorable environment for equity inflows at a time when global markets remain sensitive to policy shifts.
As the market continues to digest the budget’s implications, attention will now turn to future developments such as the IMF’s upcoming review and domestic political stability, which are expected to play crucial roles in sustaining this upward momentum. With investors seeking returns beyond fixed-income instruments, and liquidity migrating into equities, the PSX appears poised for continued expansion, barring external shocks or major policy reversals.