KARACHI: The equity market extended its upward momentum during the outgoing week, with the benchmark KSE-100 index posting a gain of around one per cent on a week-on-week basis, driven primarily by a surprise 50 basis points cut in the policy rate by the State Bank of Pakistan (SBP).

According to Topline Securities Ltd, the central bank’s decision to reduce the policy rate to 10.5pc at Monday’s Monetary Policy Committee meeting came against market expectations of a status quo, triggering renewed buying interest across sectors.

The KSE-100 index climbed from 169,865 points last week to 171,404.49 points, adding 1,540 points or 0.91pc. The index also touched an all-time closing high of 171,960 points during the week before profit-taking trimmed gains on the final trading day, reported Arif Habib Ltd (AHL).

Investor sentiment remained bu­­oyant on the back of monetary easing and improving macroeconomic indicators, although some selling pressure emerged towards the end of the week. The average daily traded volume stood at about 980 million shares, while average daily traded value reached Rs50 billion (around $176 million). Macroeco­no­mic indicators released during the week further supported investor confidence. Pakistan recorded a current account surplus of $100m in November, compared to a deficit of $291m in October and a surplus of $709m in November 2024. Despite the monthly surplus, the cumulative current account deficit for the first five months of FY26 stood at $812m.

Index hits all-time high above 171,000-point barrier

Net foreign direct investment inflows amounted to $180m in November, broadly flat on a month-on-month basis but 23pc lower year-on-year. Meanwhile, Pakistan’s real effective exchange rate (REER) rose to 104.76 in November, above its 10-year average of 103.2, indicating a relatively stronger currency position.

If a country’s REER falls, its goods become relatively cheaper for foreign buyers, boosting export potential, while a rising REER makes imports cheaper and exports pricier, impacting trade balance.

On the fixed-income side, the week’s treasury bill auction raised Rs445bn, exceeding the Rs400bn target, amid total bids of Rs2.49 trillion. Cut-off yields declined by 25 to 70 basis points across all tenors.

Foreign exchange reserves also showed improvement. The SBP-held reserves increased by $1.3bn during the week to reach $15.9bn, partly supported by IMF disbursements under the Extended Fund Facility and Resilience and Sustainability Facility. Commercial bank reserves rose by $0.2bn to $5.2bn. The rupee appreciated marginally by 0.02pc week-on-week, closing at Rs280.25 against the US dollar.

Sectoral data painted a mixed but largely supportive picture. Power generation in November remained broadly flat year-on-year at 8,050 GWh, slightly below reference levels, while fuel cost adjustments turned negative. Auto financing surged by 35.5pc year-on-year to Rs318bn in November, reflecting easing financial conditions. Urea offtake reached its highest level for any November since 2010, driven by strong rabi season demand and manufacturer discounts, leading to a decline in industry inventories.

On the policy and investment front, AKD Securities highlighted key developments, including the finance minister ruling out a mini-budget, Pakistan and Uzbekistan agreeing to extend a preferential trade agreement, renewed discussions with Russia on an oil deal, prioritisation of brownfield refinery upgrades under the SIFC, and progress in talks with China on a $2.2bn industrial complex at Port Qasim.

Sector-wise, jute, real estate investment trusts, commercial banks and engineering stocks outperformed, while woollen, modarabas, synthetic and rayon, and textile spinning lagged. Individuals were net buyers during the week, while foreigners and insurance companies recorded net selling.

Looking ahead, analysts expect momentum in the KSE-100 index to remain largely intact, supported by monetary easing, improved external flows, stable macroeconomic conditions and attractive valuations. The benchmark index is currently trading at a price-to-earnings ratio of around 8.5x, close to its long-term average, while offering a dividend yield of over 5.5pc. However, analysts caution that short-term volatility may persist around the upcoming rollover.

Published in Dawn, December 21st, 2025