The benchmark KSE-100 index plunged by more than 700 points on Monday, with analysts attributing the development to the political uncertainty arising out of the outcome of the Punjab by-polls held a day earlier and the rupee losing ground against the dollar.

Stocks plunged more than 600 points shortly after trading began and lost 713.19 points against the previous day's close of 42,074.91 to reach 41,361.72 by 12:39pm.

The index closed at 41,367.11 points, down 707.8 points or 1.68 per cent.

Head of research at Intermarket Securities Raza Jafri viewed the sharp decline in context of the political situation following the by-elections in Punjab, which the PTI won by a considerable margin.

Speaking to Dawn.com, Jafri said the by-election results "strengthen calls for early general elections".

"This may eventually work out in Pakistan's favour," he said.

"In the interim, however, political uncertainty has increased and it comes at a time when Pakistan's economy is in a fragile state," he said.

He went on to say that complying with the International Monetary Fund's (IMF's) conditions for the resumption of its $6 billion loan programme with Pakistan "may prove difficult in such conditions".

"And that is why both equities and the rupee are reacting negatively," he explained.

Ali Malik, chief executive of First National Equities Limited, further pointed out that the rupee's freefall against the US dollar was another reason for the bearish trend at the Pakistan Stock Exchange (PSX).

The dollar gained Rs4.3 in the interbank market today and was trading at a record Rs215.25 against the local currency at 1:18pm.

"The pace at which the value of dollar is rising is increasing the chances of inflation in the country. Inflation could rise further in the coming days which means that the interest rate would also increase," he said, adding that this was the reason local and foreign investors were prioritising selling shares.

On the impact of the political situation, he said investors were wary due to the ongoing political uncertainty and "dangers posed to coalition partners" in the Centre.

"As a result, trading volume in the market is declining day by day," Malik said.

Ahsan Mehanti of the Arif Habib Corporation said scrips at the PSX were under "massive pressure" due to political uncertainty and the decline in the value of the rupee after the PML-N's loss in the Punjab by-polls.

He added that a further delay of two to three weeks in the release of the long-awaited IMF tranche and uncertainty regarding funding from friendly countries — a development that was expected to strengthen the rupee — played the role of a catalyst for the bearish trend at the PSX.