KARACHI: The Pakistan Stock Exchange (PSX) opened the new calendar year on a buoyant note, posting robust gains in the first full trading week as abundant liquidity and expectations of further monetary easing propelled equities to record highs.

The benchmark KSE-100 index surged past the 187,000-point mark during the early sessions, touching uncharted territory before profit-taking in the latter half of the week pared some of the advance.

The rally was largely driven by excess liquidity flowing into equities in the absence of compelling alternatives, coupled with growing optimism that another rate cut is on the cards as consumer inflation continues to decelerate. However, the last two sessions saw investors lock in gains, trimming weekly returns.

Despite being among the world’s fastest-growing equity markets, the PSX has failed to attract foreign investors, even as it delivered massive returns in calendar year 2025. Data from the State Bank of Pakistan (SBP) show net foreign outflows of $393 million from the equity market during the first half of FY26, against inflows of $142m, underscoring persistent caution among overseas investors.

Index scales fresh highs as easing inflation and policy rate cut hopes fuel local buying

The contrast between buoyant domestic participation and foreign reticence has become increasingly stark. Local investors continue to pour funds into equities despite subdued economic growth over the past three years, raising questions about the stock market’s traditional role as a barometer of the broader economy. While corporate payouts and capital gains have remained attractive, foreign investors appear unconvinced by the risk-reward balance.

According to Topline Securities Ltd, the KSE-100 index rose 3 per cent week-on-week, driven by aggressive buying from mutual funds following fresh allocations to equity schemes, alongside optimism over a policy rate cut at the upcoming monetary policy meeting. The prospect of lower interest rates has further enhanced the appeal of equities as an asset class.

Several macroeconomic developments helped reinforce sentiment. Worker remittances in December 2025 reached $3.6bn, up 17pc year-on-year and 13pc month-on-month, providing support to the external account.

Investor activity surged during the week, with average daily traded volume climbing 77pc week-on-week to 1.3bn shares, while average daily traded value jumped 151pc to Rs79bn, signalling heightened participation across the board.

Arif Habib Ltd (AHL) reported that the KSE-100 index advanced from 179,035 points last week to 184,410, gaining 5,375 points or 3pc. The move was supported by rallies in heavyweight stocks amid new-year buying, along with positive company-specific developments.

The government raised Rs979.3bn through the T-bill auction, exceeding its Rs850bn target, while participation remained strong at Rs2.55 trillion. Yields fell by 28.6 to 33.8 basis points across maturities. SBP-held foreign exchange reserves rose by $140.6m to $16.1bn during the week, while commercial bank reserves increased by $39.6m to $5.1bn. The rupee appreciated marginally, stren­gthening 0.03pc week-on-week to close at Rs280.02 against the dollar.

On the fiscal side, central government debt stood at Rs77.5tr as of November 2025, up 10.2pc year-on-year, though month-on-month growth was contained at 0.7pc.

In the energy sector, tariff rebasing from a fiscal-year to calendar-year basis is expected to lower the power purchase price by Rs0.51 per unit in CY26 compared to FY26, translating into a base tariff cut of Rs0.62 per unit.

Agriculture data remained mixed, with cotton arrivals stable year-on-year by the end of December. Punjab recorded a 4pc decline, while Sindh saw a 4pc increase, though overall arrivals in both regions remained below targets. Cotton production for FY26 is estimated at 6.8m bales, reflecting a 33pc shortfall against projections.

AKD Securities noted that the market’s sharp upward move was underpinned by favourable macro indicators, improving external balances and declining yields. Additional support came from positive diplomatic engagements and reports of potential defence-related deals, alongside renewed momentum around CPEC Phase II.

Sector-wise, transport, pharmaceuticals, insurance, refineries, and leather and tanneries led gains, while textile spinning and select consumer segments lagged.

Flow data showed mutual funds and companies as net buyers, while banks and foreign investors remained net sellers. The KSE-100 is currently trading at a price-to-earnings ratio of 9.2 times, offering a dividend yield of around 5.4pc.

Analysts at AKD Securities expect sentiment to remain broadly supportive, citing the likelihood of further monetary easing, an improving external account and continued reform efforts amid relative political stability. They project the KSE-100 index to reach 263,800 points by December 2026, with investor confidence potentially bolstered by renewed inflows of foreign portfolio and direct investment as external relations improve.

Published in Dawn, January 11th, 2026