By Moaaz Manzoor

Pakistan's stock market delivered a strong performance in FY2025-26, with the benchmark KSE-100 Index gaining 18.4%, reflecting improving investor confidence, strengthening macroeconomic stability and renewed interest in capital markets, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The survey highlights the Pakistan Stock Exchange (PSX) as one of the beneficiaries of the country's improving economic environment during the fiscal year, supported by easing inflation, exchange rate stability, fiscal consolidation and positive growth prospects.

The market's performance came amid broad improvements in economic indicators and increasing investor optimism regarding Pakistan's macroeconomic outlook.

The survey notes that economic stabilization measures implemented over the past two years played a key role in restoring investor confidence. Lower inflation, improved fiscal discipline, stronger external sector indicators and a stable exchange rate contributed to greater participation in the equity market.

Pakistan's economy grew by 3.7% during FY2025-26, while private investment increased by 12.8%, creating a more supportive environment for capital market activity.

The survey highlights that market capitalization at the Pakistan Stock Exchange increased substantially during the fiscal year, reflecting rising share prices and improved investor sentiment.

According to the report, total market capitalization increased from Rs15.24 trillion at the end of June 2025 to Rs16.53 trillion by the end of March 2026.

Trading activity also remained robust throughout the fiscal year. Higher investor participation and increased liquidity supported market performance across multiple sectors.

The banking sector continued to dominate market capitalization and trading activity, benefiting from strong profitability and improved financial sector conditions.

The survey points out that the capital market played an important role in mobilizing savings and facilitating investment during the fiscal year. A well-functioning stock market provides companies with access to financing while offering investors opportunities to participate in economic growth.

According to the Ministry of Finance, efforts to deepen capital markets remained an important component of broader financial sector development initiatives.

The survey also highlights the growing importance of Islamic finance within Pakistan's capital markets. Shariah-compliant securities accounted for approximately 64% of total market capitalization, indicating increasing investor preference for Islamic investment products.

During the fiscal year, activity in the Sukuk market also expanded. The government raised approximately Rs2.25 trillion through Sukuk issuances, while trading activity in sovereign Sukuk continued to increase.

The report notes that capital market development remains important for supporting investment, infrastructure financing and long-term economic growth.

Macroeconomic improvements contributed significantly to market performance. Inflation moderated considerably during FY2025-26, while workers' remittances increased to $30.3 billion and foreign exchange reserves strengthened.

The fiscal deficit narrowed and the government maintained a sizeable primary surplus, helping improve perceptions regarding economic stability and policy credibility.

According to the survey, the stock market's performance reflected investors' positive assessment of the country's improving economic fundamentals and reform trajectory.

The Ministry of Finance notes that continued efforts to strengthen regulatory frameworks, expand investor participation and deepen financial markets will remain important for sustaining capital market growth.

The survey further highlights the role of the Pakistan Stock Exchange in supporting privatization initiatives, corporate financing and economic development by providing an efficient platform for capital mobilization.

With the KSE-100 Index posting double-digit gains and market capitalization expanding by more than Rs1 trillion during FY2025-26, the stock market emerged as one of the strongest-performing segments of the economy, reflecting improved confidence in Pakistan's economic recovery and future growth prospects.

Credit: INP-WealthPk