KARACHI: The Pakistan Stock Exchange (PSX) extended its recovery for a second consecutive week, buoyed by improving macroeconomic indicators, easing geopolitical tensions and a sharp fall in international oil prices, which strengthened expectations of a policy rate cut later this month.

The benchmark KSE-100 index gained 5,801 points, or 3.23 per cent week-on-week, to close at 185,372 points, as investors welcomed slowing inflation, declining bond yields and optimism over the external account.

According to Topline Securities, sentiment improved as falling global oil prices eased concerns over Pakistan’s external financing needs, while June inflation slowed to 11.07pc from 11.66pc in May, reinforcing expectations of monetary easing.

However, Pakistan’s monthly trade deficit widened to $4.5 billion in June, the highest in four years, reflecting a sharp increase in imports.

Slowing inflation and softer crude oil prices lift sentiment

Trading activity remained healthy, with average daily volumes of 865 million shares and average daily turnover of Rs48bn.

Foreign corporates, insurance companies and individual investors remained net sellers during the week, offloading equities worth $7.5m, $20m and $4m, respectively. Mutual funds and companies emerged as the main buyers, purchasing shares valued at $21m and $9.7m.

Arif Habib Ltd (AHL) attributed the market’s advance to easing geopolitical tensions, which pushed oil prices lower and boosted investor confidence.

Pakistan’s total liquid foreign exchange reserves rose 2.6pc week-on-week to $22.05bn as of June 24, with State Bank reserves increasing to $16.53bn.

In the latest Pakistan Investment Bonds auction, the government raised Rs438bn against a target of Rs350bn, while cut-off yields declined by 47 to 70 basis points across all maturities, reflecting improving inflation expectations.

The rupee also posted a marginal gain, appreciating 0.03pc against the US dollar to close at Rs278.12.

Among key economic indicators, gas production edged up 0.5pc during the third week of June to 2,971mmcfd, supported by higher output from the Mari, Uch and Qadirpur fields. However, production at the Shewa field fell sharply following disruptions linked to the SNGPL pipeline rupture.

Petroleum sales remained under pressure, falling 20pc year-on-year to 1.26 million tonnes in June, while overall refinery uplift declined 8.1pc owing to weaker demand for high-speed diesel and furnace oil.

Provisional urea offtake increased 2pc year-on-year to 592,000 tonnes, although demand remained subdued after dealers built inventories ahead of anticipated price increases earlier this year.

AHL expects the market to maintain its positive momentum next week, although the outlook remains sensitive to geopolitical developments. The brokerage noted that the KSE-100 is trading at a price-to-earnings ratio of 8.5 times with a dividend yield of 5.9pc.

AKD Securities said the market rally was driven primarily by lower-than-expected inflation, with average consumer inflation for FY26 easing to 7.05pc, strengthening expectations of a policy rate reduction later this year.

The banking sector led the advance, contributing 3,508 points to the benchmark index as lower interest rate expectations improved the sector’s outlook.

The brokerage also highlighted the decline in Pakistan Investment Bond yields following the inflation data, while noting that improving traffic through the Strait of Hormuz after positive US-Iran talks in Doha helped pull Brent crude prices closer to below $70 per barrel.

On the macroeconomic front, Pakistan’s trade deficit for FY26 widened 22pc year-on-year to $39.5bn, while the State Bank’s foreign exchange reserves ended the fiscal year at a record $18.4bn.

Sector-wise, jute, sugar and allied industries, and synthetic and rayon posted the strongest gains during the week, while textile spinning, leather and tanneries, and exchange-traded funds underperformed.

Mutual funds and companies remained the largest net buyers, purchasing equities worth $23.5m and $6.6m, respectively, while insurance companies and individual investors continued to reduce exposure.

Looking ahead, AKD Securities said progress in US-Iran negotiations, further moderation in international oil prices and June-quarter corporate earnings would remain the key drivers of market performance. It added that Pakistani equities continue to trade at attractive valuations, with the market valued at a forward price-to-earnings ratio of 7.1 times.

Published in Dawn, July 5th, 2026