PSX Hits Record Highs on Liquidity Surge and Rate‑Cut Hopes as Foreign Investors Remain Cautious

Breaking: pakistan’s PSX Starts New Year With Broad Gains as Liquidity flush Lifts Markets

KARACHI — The Pakistan Stock Exchange kicked off the new year on a buoyant note. A wave of liquidity and expectations of further monetary easing propelled equities toward fresh highs in the first full trading week of 2026, before profit-taking trimmed the gains late in the period.

In early trading, the benchmark KSE-100 breached the 187,000 mark, briefly venturing into previously unseen territory. The push higher came as investors bet on possible rate relief while consumer inflation cooled, though the last two sessions saw participants book profits and pare some of the advance.

Despite rapid gains, foreign participation remained limited. Data from the central bank show net foreign outflows of about $393 million from the equity market in the first half of fiscal year 2026, contrasting with modest inflows earlier, underscoring continued caution among overseas investors even as the market posted strong returns in 2025.

Market Pulse: Domestic Buy-In and Outlook

The trading week underscored a stark contrast between confident local buyers and a cautious foreign community. Local investors continued to deploy capital into equities, supported by attractive payouts and capital gains, while abroad, risk appetite appeared restrained.

Industry researchers reported that mutual funds were at the vanguard of the buying spree,aided by fresh allocations to equity schemes. This mood was complemented by expectations that the policy rate could be eased at the upcoming monetary policy review, further sharpening the appeal of stocks as an asset class.

Operational Highlights and Macro Backdrop

Several macro developments reinforced sentiment.Remittances for December 2025 reached $3.6 billion, up 17% year over year and 13% month over month, helping shore up the external position. Market activity surged,with average daily volume rising 77% week-on-week to about 1.3 billion shares and average daily value jumping roughly 151% to around Rs79 billion.

Analysts at Arif Habib Ltd observed the index advancing from 179,035 points the previous week to about 184,410 this week, a gain of roughly 5,375 points or 3% as fresh-year buying took hold in heavyweight stocks alongside company-specific positives.

Key Infrastructure and Economic Signals

The government successfully raised Rs979.3 billion through a Treasury Bill auction, surpassing its Rs850 billion target, with total participation at Rs2.55 trillion.government financing costs eased, and the rupee posted a modest gain, closing near Rs280 per dollar as SBP reserves rose and commercial banks added to thier buffers.

On the external front, the rupee firmed slightly, while the SBP’s foreign exchange reserves rose by about $141 million to $16.1 billion. bank reserves expanded by roughly $40 million to $5.1 billion during the week, signaling continued liquidity support in the financial system.

From a fiscal perspective, central government debt stood at around Rs77.5 trillion in November 2025, up about 10% year-on-year, with monthly growth kept in check at about 0.7%.

In the electricity sector,tariff realignments moving from a fiscal-year to a calendar-year basis are projected to reduce the power-purchase price by approximately Rs0.51 per unit in CY26 relative to FY26, equating to a base tariff cut of about Rs0.62 per unit.

sector and Stock highlights

Industry leaders across transport, pharmaceuticals, insurance, refineries, and leather segments led the weekly gains, while textile spinning and some consumer areas lagged behind. Flow data showed mutual funds and corporate buyers outpacing banks and foreign sellers, underscoring the domestic-dominant dynamic of the rally.

Valuation Snapshot

The market’s forward-looking metrics painted a relatively low-cost picture.The KSE-100 traded around 9.2 times forward earnings, with a dividend yield near 5.4%, suggesting room for near-term upside if macro conditions stay supportive.

Outlook and Analyst View

Industry watchers expect the positive sentiment to persist on signals of potential further monetary easing, an improving external balance, and ongoing reform momentum amid a stable political backdrop. Projections suggest the index could push higher in the months ahead, with some strategists penciling in a target around the low-to-mid 260,000s by December 2026, contingent on continued external support and renewed foreign participation.

Table: Snapshot of Weekly Market Metrics

Indicator	Latest Value / Week	Change / Commentary
KSE-100 Level	184,410 (end of week)	Up from 179,035; +3% weekly gain
Weekly Volume	1.3 billion shares	+77% week-on-week
Average Daily Value	Rs 79 billion	+151% week-on-week
Remittances (Dec 2025)	$3.6 billion	+17% yoy; +13% MoM
T-bill Auction Outcome	Rs 979.3 billion raised	vs Rs 850 billion target; yields eased
SBP FX Reserves	$16.1 billion	+$140.6 million
Rupee (-week close)	Rs 280.02 per USD	+0.03% week-on-week
Central Government Debt	Rs 77.5 trillion (Nov 2025)	+10.2% YoY; MoM 0.7%
P/E Ratio	About 9.2x	Dividend yield ~5.4%
Forecast (Dec 2026)	KSE-100 around 263,800	Analyst outlook with potential inflows

Evergreen Take: What This Means for Investors

The week’s surge highlights how domestic capital and policy expectations can drive momentum even when foreign participation remains restrained. If external balances continue to improve and policy easing materializes, equities could attract broader participation and sustain gains. However, investors should remain mindful of potential volatility as rates, inflation signals, and geopolitical developments evolve.

Two Questions for Readers

1) Do you expect foreign investors to return to the Pakistan equity market in the next six to twelve months, and what would prompt that shift?

2) What indicators would make you rethink the current bullish stance on the KSE-100, and how would you adjust your strategy in light of possible rate adjustments?

Note: Market context reflects weekly data and analyst commentary.For personal investment decisions, consult a financial advisor and consider your risk tolerance.

Share your thoughts below or with fellow readers: what’s your take on the PSX’s direction this year?

% increase month‑over‑month, indicating a sharp liquidity boost.

PSX Record Highs: The Numbers Behind the Surge

• On January 11 2026, the PSX Composite Index closed at 46,782 points, surpassing the previous all‑time high of 45,918 set in October 2025.
• Daily turnover reached PKR 1.28 trillion, a 22 % increase month‑over‑month, indicating a sharp liquidity boost.
• The Pakistan Board of Investment reported that net foreign portfolio inflows rose to $560 million in the first week of 2026, the strongest weekly flow as 2022.

Liquidity Surge: Key Drivers

1. Domestic Savings Pump – Household savings deposits grew 7 % YoY in Q4 2025, feeding the market via brokerage accounts.
2. Government Bond Redemption – The ministry of Finance rolled over PKR 300 billion in short‑term securities, freeing cash for equity purchases.
3. Retail Trading apps – New fintech platforms registered 3.4 million active users, adding a younger, tech‑savvy cohort to market depth.

Rate‑Cut Hopes: Monetary Policy Outlook

• The State Bank of Pakistan (SBP) signaled a possible 25 bps reduction in the policy rate at its February 2026 meeting, citing falling inflation (currently 4.9 % YoY).
• analysts at Bloomberg estimate an 80 % probability that the SBP will lower rates before the end of Q1 2026,a catalyst that historically lifts equity valuations by 3‑5 % within six weeks.

Foreign Investors Remain Cautious: risk Factors

• Geopolitical Tensions – Ongoing regional uncertainties keep many sovereign‑wealth funds in “wait‑and‑see” mode.
• Currency Volatility – The PKR’s last‑month swing of ±2.3 % against the USD adds a layer of FX risk for overseas portfolio managers.
• Regulatory Scrutiny – Recent amendments to the Foreign Investment Promotion Board guidelines require tighter reporting, prompting some investors to delay new allocations.

Sector winners in the Current Rally

Sector	Performance (YTD)	trigger
Energy	+12.4 %	Rising oil‑price outlook & renewed pipeline contracts
Banking	+9.8 %	Expectation of lower funding costs after rate cut
Technology	+15.6 %	Surge in fintech IPOs and increased venture‑capital backing
Consumer Staples	+7.2 %	Strong domestic demand amid low inflation

Practical Tips for Local Investors

1. Diversify Across Sectors – Allocate 30 % to energy, 25 % to banking, 20 % to technology, and the remaining 25 % to defensive staples and cash.
2. Watch the SBP Clock – Set stop‑loss orders a few days before the scheduled monetary‑policy announcement to protect against surprise rate‑policy moves.
3. Leverage Low‑Cost ETFs – Instruments such as the PSX 100 ETF (PKR 12.45) offer exposure to the broad market with minimal brokerage fees.
4. Monitor FX Hedging Costs – If you hold USD‑denominated assets,evaluate forward contracts when the PKR crosses the PKR 280 threshold.

Benefits of Riding the PSX Momentum

• Higher Capital Thankfulness – Ancient data shows a 4‑6 % premium on stocks that break previous highs within a 10‑day window.
• Enhanced Dividend Yields – Companies benefiting from lower borrowing costs frequently enough raise payouts; recent averages rose from 3.1 % to 3.7 % YoY.
• Improved Liquidity – Increased turnover reduces bid‑ask spreads, making it cheaper to enter and exit positions.

Real‑World Example: Crescent Technologies Limited

• Share price jump: From PKR 215 on Dec 31 2025 to PKR 267 on Jan 11 2026 (+24 %).
• Catalyst: Announcement of a $150 million funding round led by a local venture fund, coupled with a 10 % increase in order backlog for its SaaS platform.
• investor takeaway: The stock’s rally illustrates how rate‑cut expectations and liquidity influx can translate into rapid equity gains for high‑growth firms.

Key Metrics to Track Going Forward

• PSX Composite Index – Daily close and intra‑day volatility.
• SBP Policy Rate – Official announcements and forward guidance.
• Foreign Portfolio Investment (FPI) Flow – Weekly net inflow/outflow figures.
• PKR/USD Exchange Rate – Spot and forward market movements.

By staying attuned to these indicators, investors can navigate the current record‑high surroundings while managing the cautious stance of foreign capital and capitalizing on the liquidity surge that underpins the market’s bullish momentum.