Abdul Ghani

Pakistan’s equity market maintained a strong upward trajectory during the first half of FY2026, with the benchmark KSE-100 Index posting sharp gains and total market capitalisation approaching Rs21.2 trillion, reflecting improved investor confidence amid stabilising macroeconomic conditions, according to the Monthly Economic Update and Outlook issued by the Finance Division.

Official data show that the Pakistan Stock Exchange (PSX) recorded a significant recovery in December 2025, when the KSE-100 Index gained 7,376 points during the month to close at 174,054 points. The rally continued into January 2026, with the index reaching 188,587 points as of January 26, 2026, underscoring sustained buying interest and positive market sentiment.

The strong performance of the equity market was accompanied by a sharp increase in market capitalisation. By the end of December 2025, total market capitalisation had risen by Rs823 billion to reach Rs19,690 billion. As of January 26, 2026, market capitalisation further increased to Rs21,161.7 billion, highlighting the scale of the market rebound over a relatively short period.

On a year-on-year basis, the improvement in market indicators was even more pronounced. Compared to levels recorded in January 2025, the KSE-100 Index increased by 64.2 percent, while market capitalisation in rupee terms rose by nearly 50 percent. In dollar terms, market capitalisation reached $75.6 billion as of January 26, 2026, compared to $50.6 billion a year earlier, reflecting both index gains and relative exchange rate stability.

The Finance Division noted that the strong performance of the stock market coincided with improvements in key macroeconomic indicators during FY2026. Easing inflationary pressures, reflected in a decline in headline inflation to 5.6 percent in December 2025, helped improve investor sentiment by reducing uncertainty around costs and returns. At the same time, improved fiscal outcomes and stable external sector indicators contributed to a more favourable investment environment.

The report also highlighted that Pakistan’s equity market ranked among the world’s top-performing markets during the period, reflecting renewed confidence in the country’s economic direction. Improved liquidity conditions and expanding private sector credit further supported equity valuations, as investors responded positively to signs of recovering economic activity, particularly in large-scale manufacturing and related sectors.

Capital market indicators showed that investor participation remained broad-based, with gains observed across multiple sectors of the market. The Finance Division linked the market rally to expectations of a sustained economic recovery, supported by improving industrial output, stronger remittance inflows, and disciplined fiscal management.

In addition to domestic factors, the report noted that relatively stable exchange rate conditions and strengthening foreign exchange reserves helped reinforce investor confidence. Foreign exchange reserves stood at $21.3 billion as of mid-January 2026, providing an additional buffer against external shocks and supporting overall market stability.

The Finance Division said that while the stock market rally reflects improved fundamentals, continued vigilance will be required to manage risks arising from global economic uncertainty and volatility in international financial markets. The report emphasised that sustaining investor confidence will depend on maintaining macroeconomic stability, managing inflation, and supporting growth-oriented reforms.

The strong performance of the PSX during the first half of FY2026 represents an important signal of improving market sentiment and financial sector confidence. As economic indicators continue to stabilise, the equity market is expected to remain a key barometer of investor expectations regarding Pakistan’s economic outlook.

Credit: INP-WealthPk