Moaaz Manzoor

Pakistan’s equity market is expected to extend its strong rally in 2026, with the benchmark KSE-100 Index projected to reach 263,800 points by December, driven by monetary easing, political continuity, and improving external account conditions.

According to the AKD Securities Pakistan Strategy 2026 report, the KSE-100 is forecast to deliver a robust return of 53.0% in calendar year 2026, equivalent to 48.4% in US dollar terms. This performance is expected to lift Pakistan’s equity market capitalization to a historic US$100 billion for the first time.

The positive outlook is anchored in macroeconomic stabilization, a sustained reform agenda under the International Monetary Fund Extended Fund Facility, and rising investor confidence amid political stability.

AKD Securities notes that subdued returns on alternative asset classes, coupled with a relatively stable currency and falling interest rates, are likely to make equities the preferred investment choice in 2026. Despite generating cumulative returns of 188.6% over the past three years, the KSE-100 is still trading at a 40.7% discount to regional peers, while offering an attractive dividend yield of 6.2% for 2026, the report adds.

Market performance in 2025 has laid a solid foundation for further gains. The KSE-100 posted a return of 49.7% in CY25, or 49.4% in dollar terms, marking the third consecutive year of positive returns. This momentum was supported by record-high liquidity, improved external account management under the IMF programme, and Pakistan’s re-engagement on the global diplomatic front. Mutual funds also played an increasingly prominent role in market participation during the second half of the year.

On a sectoral basis, AKD Securities maintains an overweight stance on banks, exploration and production companies, fertilizers, cement, oil marketing companies, automobiles, textiles, and technology. These sectors are expected to benefit from lower interest rates, structural reforms, and subdued global commodity prices. In contrast, the power and chemical sectors are rated underweight due to changes in independent power producer contracts and subdued core margins, respectively.

The report also highlights the possibility of renewed foreign investor interest, supported by Pakistan’s potential inclusion in the MSCI Emerging Markets Index. AKD Securities expects at least three KSE-100 stocks to meet the eligibility criteria, which could significantly improve foreign inflows. Even without an upgrade, Pakistan’s weight in the MSCI Frontier Markets Index is expected to rise materially.

Analysts at AKD Securities argue that continuity in the current political setup strengthens the case for equities to trade at valuation multiples seen during previous periods of stability. With earnings growth projected at 14.9% and a potential market rerating to 11 times earnings from the current 8.4 times, the firm believes the risk-reward profile of Pakistani equities remains compelling heading into 2026.

Credit: INP-WealthPk