KARACHI: The Pakistan Stock Exchange (PSX) endured a highly volatile week but managed to close on a positive note, buoyed by a sharp rally in the final session as easing geopolitical tensions and robust large-scale manufacturing (LSM) data revived investor confidence.

After remaining under pressure due to regional uncertainties and mixed macroeconomic signals, bulls returned with force on Friday. The benchmark KSE-100 index surged by more than 3,642 points in a single session, reclaiming the 185,000 level and snapping a two-session decline.

Despite the dramatic finish, weekly gains remained modest. According to Topline Securities Ltd, the KSE-100 index posted a week-on-week increase of just 0.37 per cent, sharply lower than the 3pc gain recorded in the previous week. The brokerage attributed the slowdown in momentum to reduced inflows from local mutual funds amid heightened geopolitical tensions linked to the US-Iran situation.

Market activity also weakened. Average daily traded volume fell 24pc week-on-week to 982 million shares, while average daily value declined 26pc to Rs58.5 billion, reflecting cautious investor participation.

Friday surge offset geopolitical jitters and subdued trading activity

Key economic developments during the week provided some support. Data released by the Pakistan Automotive Manufacturers Association showed car sales of 13,280 units in December 2025, marking a 35pc increase year-on-year, though down 14pc month-on-month. Meanwhile, the LSM index posted a strong 10.37pc year-on-year growth in November 2025 and a marginal 0.16pc month-on-month increase, reinforcing expectations of a gradual economic recovery.

The bond market also signalled optimism. In the latest Pakistan Investment Bonds auction, the government raised Rs488bn against a target of Rs450bn, with cut-off yields declining by 59 to 70 basis points across various tenors. The fall in yields reflected growing expectations of a policy rate cut at the upcoming monetary policy meeting on Jan 26.

According to Arif Habib Ltd (AHL), the KSE-100 index remained largely range-bound for most of the week before closing at 185,099 points, up 689 points or 0.4pc week-on-week. The brokerage noted that market sentiment stayed subdued amid escalating geopolitical uncertainty, but improved sharply on Friday due to fresh liquidity, easing tensions and strengthened expectations of monetary easing.

On the macro front, oil production rose 1.1pc week-on-week to 65,444 barrels per day, led by higher output from northern fields amid reduced curtailment. Gas production increased to 3,012 million cubic feet per day, the highest level since mid-March 2025, driven by increased supply to the fertiliser and power sectors. Prices of motor spirit and high-speed diesel remained unchanged at Rs253.17 and Rs257.08 per litre, respectively.

Foreign exchange indicators showed marginal improvement. State Bank of Pakistan-held reserves increased by $16.1 million to $16.1bn, while the rupee appreciated slightly by 0.03pc week-on-week to close at Rs279.95 against the US dollar.

AHL expects the market to remain positive in the coming week, supported by the approaching monetary policy decision and anticipation of a rate cut. The brokerage added that the ongoing corporate result season could provide further upside, particularly in case of positive earnings surprises. The KSE-100 index is currently trading at a price-to-earnings ratio of 9.2 times, offering an attractive dividend yield of around 5.4pc.

AKD Securities Ltd also highlighted sustained volatility during the week but noted that bullish momentum ultimately prevailed as geopolitical risks began to subside and positive macroeconomic developments emerged. The brokerage pointed to defence export discussions with regional partners and strong LSM growth as supportive factors.

Sector-wise, transport, paper and board, oil and gas exploration, property, and automobile parts were among the top performers, while textile-related sectors lagged. In terms of investor flows, individuals and mutual funds were net buyers, whereas banks and insurance companies remained net sellers.

Overall, analysts believe that while near-term volatility may persist, improving macro indicators and expectations of monetary easing could keep the PSX on a constructive path in the weeks ahead.

Published in Dawn, January 18th, 2026