By Hasan Salahuddin

Pakistan’s benchmark KSE-100 index surged 51.2% in 2025 to end at 174,054 points, supported by improved investor sentiment and better macroeconomic conditions, according to the Financial Stability Review 2025 released by the State Bank of Pakistan (SBP).

The report indicates that the strong performance of the equity market was driven by a combination of declining inflation, easing financial conditions, and improved confidence in the country’s economic outlook. As macroeconomic stability gradually took hold, investors responded positively, leading to a sustained upward trend in stock prices throughout the year.

The SBP noted that lower inflation and the subsequent easing in monetary policy expectations played a key role in boosting equity valuations. As interest rates declined, the relative attractiveness of equities improved, encouraging both institutional and individual investors to increase their participation in the stock market. This shift supported market liquidity and contributed to the overall rally.

Despite the strong performance, the report highlights that foreign investors remained net sellers during 2025, reflecting continued caution among international investors due to global uncertainties and domestic risk perceptions. However, this selling pressure was largely absorbed by domestic participants, particularly mutual funds and individual investors, which helped sustain the upward momentum in the market.

Improving investor sentiment was reinforced by progress on macroeconomic stabilization, including fiscal consolidation, stronger foreign exchange reserves, and effective engagement with international financial institutions. These developments helped lower country-risk premiums and strengthen overall market confidence.

The report further notes that corporate earnings and expectations of economic recovery also played a role in supporting equity prices. As financial conditions improved and borrowing costs began to ease, companies were better positioned to manage costs and expand operations, which positively influenced market valuations.

While the equity market posted significant gains, the SBP cautioned that volatility remained slightly elevated during the year, driven primarily by fluctuations in the stock market. External factors such as geopolitical tensions and global financial market developments also had a temporary impact on investor sentiment at various points during the year.

The KSE-100’s strong performance reflects improved confidence in Pakistan’s economic trajectory, but the report emphasizes that sustaining this momentum will require continued macroeconomic stability, policy consistency, and effective management of external risks.

Credit: INP-WealthPk