Pakistan’s equity market is expected to regain momentum as improving economic indicators, corporate earnings and the upcoming International Monetary Fund (IMF) review provide potential support, according to assessments from major brokerages. However, geopolitical uncertainty remains a key near term risk for the Pakistan Stock Exchange (PSX), particularly after a difficult trading week in which renewed United States and Iran tensions weighed on investor sentiment. The benchmark KSE 100 Index declined by 2,368 points, or 1.3% week on week, to close at 175,329 on Friday. The weekly decline followed an escalation in tensions after United States strikes on Iran and subsequent Iranian attacks on United States air bases in the region. Despite the weekly weakness, the KSE 100 remained 0.7% higher compared with the beginning of 2026.
Other major market indicators also recorded declines during the week. The KSE All Share Index fell 1.2% to 106,443, while the KSE 30 Index declined 1.2% to 52,295 and the KMI 30 Index decreased 0.6% to 250,239. According to AKD Securities, the deterioration in market sentiment was partly offset by Pakistan’s record $3 billion dual tranche Eurobond issuance. The transaction achieved the country’s lowest spreads over United States Treasuries in two decades and represented Pakistan’s largest international capital market transaction. The successful issuance provided some support to investor sentiment at a time when external developments were creating additional uncertainty for financial markets.
AKD Securities also considers current market valuations supportive, with the forward price to earnings multiple standing at seven times. From the current KSE 100 level of 175,329, the brokerage has set a December target of 263,800 points. If the target is achieved, it would represent an increase of approximately 50% from the current level. Arif Habib Limited (AHL), using its own valuation framework, said the KSE 100 was trading at a price to earnings multiple of 7.8 times and offering a dividend yield of 6.3%. Its regional comparison showed Pakistan with the lowest price to earnings multiple among the 10 Asian markets included in its assessment, while the country recorded the highest dividend yield and return on equity at 6.3% and 20.1%, respectively.
The broader economic picture remained mixed during the week. Consumer inflation accelerated to around 11.1% in August from 9.2% in July, while Pakistan recorded a trade deficit of $3.2 billion. Exports increased 3.8% year on year to $2.5 billion, but imports also increased by 7.4% to $5.7 billion. Fiscal indicators provided some positive developments, with the Federal Board of Revenue collecting Rs902 billion in August. The collection was 2% higher than the same month a year earlier, although it remained Rs28 billion below the monthly target. During the first two months of FY2027, FBR collections reached Rs1.722 trillion, representing 5% growth and exceeding the Rs1.710 trillion target by Rs12 billion.
The government also repaid a record Rs1.2 trillion of central bank debt during the week, while State Bank of Pakistan foreign exchange reserves increased by $19 million to $17.1 billion as of August 28. Cotton arrivals also recorded growth, increasing 27% year on year to 1.7 million bales in August. At the same time, international energy prices emerged as a major external risk for Pakistan. Brent crude reached a six week high of $97.6 per barrel during the week amid the escalation in United States and Iran tensions. Spot Brent ended September 4 at $101.67 per barrel, representing a 13.33% weekly increase, while West Texas Intermediate increased 8.3% to $90.32. Coal prices also increased 13.86%, while gold declined 1.13%.
The weakness in the equity market was reflected across several major sectors. Banks were the largest negative contributor to the KSE 100, reducing the index by 1,318 points during the week. Cement companies followed with a 334 point decline, while exploration and production companies, technology companies and power companies reduced the index by 194 points, 185 points and 126 points, respectively. Investment banks provided a positive contribution of 151 points, while fertiliser companies added 82 points. At the individual company level, EFERT was the largest positive contributor, adding 177 points, followed by ENGROH with 159 points, OGDC with 82 points, THALL with 31 points and ILP with 26 points. UBL was the largest drag on the index, subtracting 555 points, followed by HBL at 252 points, PPL at 232 points, MEBL at 142 points and LUCK at 139 points.
Weekly percentage movements also showed significant differences between individual stocks. PGLC recorded the strongest gain, increasing 21.5%, followed by THALL at 4.8%, EFERT at 4.6%, TPLRF1 at 2.6% and ILP at 2.5%. On the losing side, PSEL declined 7%, while SRVI fell 5.2%, KOHC decreased 4.9%, LOTCHEM declined 4.8% and SEARL fell 4.7%. Investor flows continued to indicate caution among foreign participants. Foreign investors were net sellers of $7.16 million during the week, mainly due to $12.04 million in selling by foreign corporates. This was partly offset by $4.88 million in net purchases by overseas Pakistanis. Foreign selling was concentrated in commercial banks, which recorded net outflows of $6.69 million.
Local investor activity provided some support, with banks and Development Finance Institutions emerging as net buyers of $64.16 million. Individuals purchased a net $17.05 million, while companies recorded net purchases of $7.29 million. Mutual funds moved in the opposite direction, recording net selling of $83.35 million. Trading activity also showed mixed trends, as average traded volume increased 7.6% week on week to 766.7 million shares, while average traded value declined 6.1% to $119.7 million. Total KSE All market capitalisation reached Rs19.629 trillion, equivalent to around $71 billion, representing a 1.3% decline during the week.
AKD Securities expects market conditions to improve as economic indicators strengthen and the government’s fiscal position continues to improve. The brokerage also expects moderating inflation to increase the possibility of interest rates returning to single digit levels by the end of the year. It added that a potential agreement between the United States and Iran could bring international oil prices back toward levels seen before the conflict, which could reduce some of the pressure created by higher energy costs. Such developments could provide additional support to investor sentiment and improve the outlook for the equity market.
Arif Habib Limited maintained a more cautious assessment, noting that market direction would remain sensitive to geopolitical developments. Despite the external risks, AHL expects the ongoing corporate earnings season to provide support, with company results largely remaining positive. The upcoming IMF review is also expected to remain an important factor for market sentiment as investors assess progress on economic reforms and financial conditions. Intermarket Securities similarly stated in its weekly review that near term market direction would likely be influenced by developments around the Strait of Hormuz, the upcoming IMF review and progress on domestic reforms. Together, these factors are expected to determine whether the PSX can recover from its recent decline and regain momentum in the coming weeks.
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