The undertone of the KSE100 continued to be positive in Jul 2025. The KSE100 may have closed below on the weekend, but the rally has still been quite strong. Over the month of June and July 2025, the KSE100 rallied by 16% gains. What were the triggers for the rally, the best 3-month performance over the past few year. Pakistan Stock Exchange on last Friday to mark historic intraday high of 140,585.38 with volumes of 608 million shares. The KSE-100 index crossed 140,000 psychological barrier intraday but could not sustained and closed 138537 after loosing 68 points.

The KSE-100 index has witnessed a strong rally underlying composition of the winners and losers changed sharply. There were a number of subtle underlying shifts that happened in these months. Some of the key takeaways are as under;

1.     Stable economic outlook with IMF backing is one of the strongest reason behind the PSX’s performance in 2025. The government of Pakistan has successfully achieved macroeconomic recovery under IMF reform program with;

a.     Stabilized Pakistan Rupee (PKR)

b.     Reduced Inflation from double digit to 3.2% in June 2025.

c.      Strengthening of FX reserves base.

This stability has given room of confidence for investors to reinvest in the stock market.   

2.     SBP initiated monetary easing cycle by reducing interest rates, after years of tight rates. The benchmark policy rate has been cut nearly 400 basis points over the past few months making

a.     Cheaper borrowing for businesses.

b.     Stronger corporate earnings

c.      Investment in Stock Market remained more lucrative then fixed income instruments.

This allowed especially banking construction and fertilizer sectors to outperform as lower interest cost increased profitability.   

3.     Robust quarterly corporate earnings in 2025 translating into higher dividend yield is attracting both retail and institutional investors. The sectors include

a.     Banking with expanding loans & lowering provisioning.

b.     Oil & Gas with higher global energy prices & stable refining margins.

c.     Cement & Steel with increased infrastructure demand and declining coal cost.

4.     Despite 50% to 60% in the past 1 year PSX still remains undervalued once you compare it to regional markets.  Pakistan’s market Price to Earning (P/E) ratio stands 4.5x to 5.5x which is considerably lower to its regional peers. This deep value is attractive for long term value investors, especially as the emerging market returns intensifies.

5.     This has created notable retail participation due to increased volumes uptick in investors activity mainly due to;  

a.     Digital Account Opening

b.     Mobile Trading Apps like AZEE Stockify

c.      Investors awareness drive and knowledge centers.  

Road Ahead for PSX

In 2025, Pakistan’s stock market is heading on the back of solid fundamentals. With stabilizing macroeconomic conditions, strong corporate earnings, and retail participation. KSE-100 index to cross new all-time highs with further foreign inflows especially potential MSCI upgrades.  

In a nutshell, the big shift in stock market may have just begun! As it has so much as an asset class, an attractive basket case for equities in Pakistan becomes due to offering real rates of returns. That could drive markets in the months ahead too.