KSE-100 Index Performance: Positive Momentum Continues

The KSE-100 Index witnessed a positive trend during the week, closing at 158,037, marking a solid gain of 3,598 points (+2.33% WoW). This upward movement was largely driven by the renewed investor optimism, following the announcement of the Saudi-Pakistan defense pact, which fueled hopes for improved economic relations and security cooperation between the two nations. The market’s bullish behavior came amid improved sentiment, with many investors viewing the defense agreement as a step toward stabilizing the broader economic and geopolitical landscape.

Key Economic Events:

• SBP's Monetary Policy:
• In a cautious move, the State Bank of Pakistan (SBP) decided to keep the policy rate unchanged at 11%. The decision reflected the central bank’s wait-and-see approach, acknowledging the prevailing challenges, including the economic strain caused by the recent floods. These floods have led to disruptions in agriculture and industrial output, prompting the SBP to take a more prudent stance to support long-term stability.
• Current Account Deficit Narrowed:
• For the month of August 2025, Pakistan’s current account deficit narrowed to USD 245 million, a notable improvement from USD 379 million recorded in July 2025. This reduction in the deficit was a positive indicator of improving balance-of-payments dynamics, potentially reflecting better management of imports, exports, and remittances.
• Manufacturing Sector Performance:
• The Large Scale Manufacturing Industries (LSMI) sector showed impressive growth, reporting an 8.99% YoY increase in July 2025. On a monthly basis, LSMI output grew by 2.6%, indicating continued expansion in industrial production. This growth can be attributed to increased production in various sectors, particularly cement, automobiles, and textile industries, all of which benefitted from both domestic demand and export growth.
• T-Bill Auction Results:
• In the latest Treasury Bill (T-Bill) auction, the **SBP raised PKR 201.9 billion, surpassing its target of PKR 175 billion. The success of the auction is a reflection of the market’s confidence in the government’s ability to meet its fiscal obligations, despite the challenging macroeconomic environment.
• Power Generation Growth:
• Pakistan's power generation rose by 8% YoY in August 2025, reaching a total of 14,218 GWh. This increase can be attributed to higher production in both thermal and hydel power plants, with the Fuel Cost Adjustment (FCA) mechanism playing a key role in ensuring that power generation remained profitable during the month. As a result, the energy sector showed resilience despite ongoing challenges.
• Technology Exports:
• The technology exports sector continued its upward trajectory, with exports increasing by 13% YoY to USD 337 million in August 2025. However, the sector experienced a 5% decline MoM, which raised some concerns over the sustainability of this growth trend. Technology exports now account for nearly 50% of overall service exports, underscoring the sector's increasing importance to Pakistan’s economy.
• SBP Reserves Increase Slightly:
• The SBP reserves saw a minor increase, rising to USD 14.4 billion, an increase of USD 20.9 million WoW. This small uptick in reserves provides some cushion to the country’s foreign exchange position, but the reserves remain under pressure due to global economic conditions and domestic challenges.
• PKR Exchange Rate:
• The Pakistani Rupee (PKR) appreciated marginally by 0.03%, closing at PKR 281.46 against the US Dollar. This slight gain was seen as a positive sign, although it’s not yet enough to suggest a sustained recovery in the exchange rate, given the broader macroeconomic challenges Pakistan is facing.

Market Activity:

• Average Trading Volume:
• The average trading volume for the week stood at 1,544 million shares, marking a 2.3% WoW increase, indicating heightened investor interest and participation.
• Average Trading Value:
• The average value traded declined by 3.5% WoW, settling at USD 178 million, signaling a slight dip in the overall trading value despite the increase in volume.

Market Outlook and Investment Appeal:

Looking ahead, investor sentiment in the coming week will largely depend on two key factors:

1. IMF Review Talks:
2. The upcoming review discussions with the International Monetary Fund (IMF), scheduled for September 25, 2025, will be a crucial development for the market. Investors will be closely watching these talks for any signs of progress in securing additional financial support. The outcome of these discussions will likely set the tone for market behavior in the near term.
3. Flood Impact Monitoring:
4. The ongoing flooding crisis in various parts of the country continues to be a major concern, with potential adverse effects on agriculture, infrastructure, and economic output. Investors will be looking for any updates on recovery efforts and government interventions to mitigate the damage.

• Valuation:
• The KSE-100 Index is currently trading at a forward Price-to-Earnings Ratio (PER) of 7.8x for 2026, which is below its 15-year average of 8.59x. This makes the market appear relatively undervalued, offering opportunities for long-term investors.
• Dividend Yield:
• The KSE-100 Index currently offers a dividend yield of approximately 5.8%, compared to the historical average of 6.13%. While slightly below the historical norm, this yield is still attractive for income-focused investors, particularly in a low-interest-rate environment.