KSE-100 outperforms all asset classes for third year with 44% gain in FY26

The benchmark KSE-100 Index of the Pakistan Stock Exchange (PSX) outperformed all major asset classes for the third consecutive year in FY2026, gaining around 44% in rupee terms as policy continuity, macroeconomic stability, record trading volumes and Pakistan’s return to international debt markets supported investor confidence, according to separate market strategy reports by AKD Research and Topline Securities.

AKD reports said that The benchmark index gained 43.5% during FY26, or 46.4% in US dollar terms, according to one report. Topline said the KSE-100 closed the year at 180,302 points, up 44% in rupee terms and 46% in dollar terms.

The market’s three-year performance also remained strong. Over FY24, FY25 and FY26, the PSX recorded a cumulative gain of 335% in rupee terms and 347% in dollar terms amid macroeconomic stability under the IMF programme.

The FY26 rally was supported by rating upgrades, prudent monetary and fiscal measures, and Pakistan’s successful return to international capital markets. Analysts said the market recovered after volatility caused by regional geopolitical tensions and the commodity price shock earlier in the year.

Market performance was stronger in the first half of the fiscal year. One report said the index returned 39% in 1HFY26, supported by improving economic indicators despite floods in July-August 2025, while 2HFY26 produced a 4% return amid volatility.

The KSE-100 touched a high of 189,167 points on January 23, 2026 and a low of 146,480 points on March 9, 2026, reflecting a 29% swing during the year. The second-half volatility was linked mainly to the Iran-US/Israel conflict, higher petroleum prices and concerns over Pakistan’s external account, as the country imports more than 80% of its energy requirement.

Those concerns were later eased after Pakistan announced measures to manage petroleum demand, secured additional financial support from Saudi Arabia, raised $750 million through a Eurobond in April 2026 and $250 million through a Panda bond in May 2026.

Trading activity also improved sharply. Market volumes rose 40.8% year-on-year to an all-time high of 1.168 billion shares, while traded value increased 48.5% to a record Rs56.7 billion.

The KSE-100 also outperformed gold, treasury bills, Defence Saving Certificates, PIBs, MSCI Frontier Markets and the dollar in FY26. The rupee appreciated 2% during the year after depreciating 1.9% in FY25, supported by remittances, a shrinking services deficit and Pakistan’s return to international bond markets.

Sector-wise, technology posted a 52% return in FY26, followed by investment companies at 51%, commercial banks at 50% and fertilisers at 41%. In index-point terms, commercial banks were the largest contributors, adding 19,051 points, followed by fertilisers with 7,032 points, oil and gas exploration companies with 5,211 points and power companies with 2,829 points.

At the stock level, Fauji Fertilizer Company, United Bank Limited and Hub Power Company were the biggest contributors to the rally, adding 6,286 points, 6,080 points and 3,777 points, respectively.

Foreign investors remained net sellers for the second consecutive year. Foreigners sold $848 million worth of shares during FY26, with the largest outflows recorded in cement at $310.5 million, FMCG at $190.6 million and banks at $142.7 million.

Local investors absorbed much of the foreign selling. Companies were net buyers of $584.6 million, mutual funds bought $400.7 million and individuals purchased $327.7 million worth of shares. Insurance companies, banks and brokers reduced their equity positions by $240.9 million, $171.5 million and $3.2 million, respectively.

Despite the rally, valuations remain below regional levels. Pakistan equities are trading at a forward price-to-earnings multiple of 6.8x, compared with a regional average of 12.57x, implying a 46% discount to regional peers. The FY26 dividend yield was estimated at 7.15%, compared with the regional average of 3.86%.

On the macroeconomic side, Pakistan’s nominal GDP was estimated at $452.1 billion in FY26, with real GDP growth of 3.7%. Growth is projected at 4.1% in FY27 and 3.9% in FY28. Average CPI inflation was estimated at 7.1% in FY26, compared with 4.5% in FY25 and 23.4% in FY24.

Inward remittances were estimated at $41.5 billion in FY26 and are projected to rise to $42.2 billion in FY27 and $43.4 billion in FY28. The current account was estimated at $0.1 billion in FY26, compared with a surplus of $1.9 billion in FY25.

For FY27, analysts identified regional geopolitics, external relations, oil prices, privatisation, Reko Diq-related investment, foreign exchange reserves, IMF reviews, fiscal targets, credit rating upgrades and access to external financing as key factors for the market.

SBP reserves stood at $15.916 billion for the week ending June 19, 2026. The reports said additional inflows, including $0.7 billion from a multilateral institution and around $1.7 billion in refinancing of government commercial loans, were expected to be reflected in the final week of FY26, helping reserves move towards the roughly $18 billion target.

Pakistan has also cleared its second and third EFF/RSF reviews in December 2025 and May 2026, with total disbursements of around $4.8 billion. For FY27, the focus will shift to the fourth and fifth reviews and an underlying primary balance target of 2% of GDP, while the IMF has set an FBR revenue target of Rs15.3 trillion.

The outlook for equities remains supported by lower fixed-income yields, external account stability and continuing reforms. AKD’s forecast puts the KSE-100 at 263,800 by December 2026, while Topline projects the index at 203,000, implying a 13% total return over the next six months.